Markets Live: Wednesday, 19th March, 2014

This is the transcript of the Markets Live session ending at 13:47 on 19 Mar 2014. Participants in this session were: Paul Murphy Bryce Elder

PM

Hi

Block

PM

Welcome

Block

PM

hate budget day

Block

PM

We’ve had neither a bull or bear market for much of the morning

Block

PM

Footsie literally stuck a 0% change

Block

PM

But jsut ticked lower in the last few minutes

Block

PM

hate budget day

Block

PM

Dull

Block

PM

Inbox groans with budget commentary spam

Block

PM

All pre-written

Block

PM

Dull

Block

PM

You can read John McDermott, he’s rather funny

Block

PM

Bluffers’ guide

Block

PM

You can preview the new planned comments layout for FT.com on that post as well

Block

PM

My word, market’s dull

Block

PM

hate budget day

Block

BE

Yup. Everything that sounds positive is leaked beforehand and everything that’s negative is buried in the doc that no one reads until the weekend.

Block

BE

It’s a nonevent.

Block

PM

Liven me up Bryce

Block

BE

……………………………………………………………. um.

Block

PM

I need an adrenlin shot

Block

BE

It’s quiet. Really. Volume’s miserable.

Block

PM

Osborne speaks at 12.30

Block

PM

Oh look, the Footsie has recovered, marginally

Block

BE

Just looking down the list, Ophir’s the most traded against recent daily averages.

Block

PM

Ok Ophir

Block

BE

Yup. May as well start there.

Block

PM

Not a dull day if you are a holder of Ophir

Block

PM

EmoticonEmoticon

Block

BE

So, Gabon’s a duster.

Block

Ophir Energy PLC (OPHR:LSE): Last: 240.60, down 54.8 (-18.55%), High: 259.80, Low: 232.10, Volume: 4.59mBlock
PM

Vicious reaction

Block

BE

That volume’s nearly four times the recent daily average.

Block

BE

Lots of sellside saying, yes but exploration was never really in Ophir’s price.

Block

BE

The buyside appears to disagree.

Block

PM

hehehe

Block

BE

So this is the 990mb pre-salt Padouck Deep-1 well in the Ntsina Block

Block

BE

Would’ve been worth about 400p to Ophir if it had oil in it.

Block

BE

Which was about a one-in-ten chance.

Block

BE

It was their attempt to replicate Brazilian pre-salt on the other side of the ocean.

Block

BE

As ever, the announcement stresses the positives.

Block

BE

It’s hit sand. Excellent quality sand.

Block

BE

Which is very promising for the two other wells there, just not for the one that doesn’t have any oil in it.

Block

BE

Note this is the day before FY results from Ophir.

Block

BE

Shares probably won’t go much lower, backstopped as they are by the farmdown of half of its stake in Tanzania to Temasek

Block

BE

Which is that BG-operated LNG project

Block

BE

Worth $1.3bn before tax, or about 232p/sh.

Block

BE

Let me get some comment.

Block

BE

Deutsche.

Block

BE

Padouck Deep was one of the highest potential wells not only in
Ophir’s drilling programme but across the E&P sector. While the deep-water
and frontier characteristics of the well presented a higher risk profile and were
well flagged by management, this is a disappointing result. The key pre-drill
risk was whether the overlaying salt was thick enough to provide a seal and
this appears to have caused the prospect’s failure. Minor oil shows in
shallower intervals and thick, high porosity reservoirs in the target intervals are
encouraging for the wider pre-salt play. Padouck Deep represented 34p in our
risked NAV and two further Gabon wells represent an additional 37p. The next
well in the sequence is Affanga Deep which is testing a geologically
independent play in the Ogooue Delta. Ophir’s cost exposure to Padouck was
largely carried by the JV partnership.

Block

BE

And Oriel, which I think is shop …

Block

BE

How do I know? Well ….

Block

BE

Any positives in the result? While the well failed to de-risk the entire play, the company believes the results are prospect specific and do not lower the prospectivity of the pre-salt play in the area. The company plans to drill the second pre-salt well (Okala) after it completes its deepwater play (Affanga Deep well), which is the next well in line. We also note that the Padouck Deep-1 well costs were largely carried by its partners.

Block

PM

hehehe

Block

BE

Not a major impact to our thesis. Our investment thesis on Ophir has largely been based on unlocking value from its Equatorial Guinea gas discoveries. As highlighted in our previous reports, our valuation of the Gabon acreage is based on farm-in value and in total (for all four blocks) it accounted for 23p/share in our target price. In that respect we are taking the Ntsina block out of our valuation (but keep the other three blocks in the valuation) and lowering our target price to 385p/share

Block

BE

Bottom line: this morning potential share reaction. We believe the market currently does not assign much value to exploration. Nevertheless, we expect negative sentiment towards the shares this morning. Based on our farm-in valuation, theoretically, we should expect an impact of no more than 7p/share. However, we would not be surprised if additional value is taken out of the stock for the upcoming two wells in Gabon. As presented in Figure 2, in extreme case (which we do not anticipate) our downside for all four blocks is 28p/share (Figure 2). In any case, given that our thesis is not based on these Gabon wells, we maintain our investment thesis in the company and see a potential buying opportunity if there is an over-reaction to the news.

Block

11:14AMBlock
PM

Run through some movers maybe

Block

PM

On this dull budget day

Block

PM

Barc bounce i seek

Block

PM

BAE

Block

PM

Fags still flagging

Block

BE

It’s all rather following the recent trends.

Block

BE

Since you mention banks though, we can head in there.

Block

Barclays PLC (BARC:LSE): Last: 242.80, up 6.75 (+2.86%), High: 243.30, Low: 236.95, Volume: 23.89mBlock
PM

(outlaw — will share link to the FT live blog on the matter towards the end of this session)

Block

BE

Cazenove’s Raul Sinha is talking about big cuts.

Block

BE

As in, incremental cost cuts of £1bn

Block

BE

And RWA cuts of c£40bn by 2016

Block

BE

Usual story, really.

Block

BE

Our biggest concerns remain on capital and costs. We
view CT1 at 9.3% as a headwind to valuation given a target of 11.5-12%
and see the group’s current £440bn RWA guidance as too high. Also, a lack
of flexibility within the group’s cost base implies negative operating
leverage in 2014 and lower TNAV due to restructuring costs. We believe
that the ROE = COE target for 2016 will be missed unless the group
outlines new cost saves.

Block

BE

…… Which it will, of course, as your FT has reported repeatedly.

Block

BE

What’s possible? A review of IB businesses and allocated capital leading
to incremental cost cuts, a core/non-core split with action on £42bn of IB
legacy assets leading to a reduction of the group’s £440bn RWA target
which is too high in our view. This would take IB capital allocated from
over £26bn to c£22bn by ‘16, allowing group ROE greater than COE. Together, these
actions, if taken, would close the 22% discount to TNAV, in our view.

Block

BE

What’s probably more interesting is that Caz reckon there’s no point in a breakup.

Block

BE

What’s unlikely to work? A split of the group involving a separate listing
of the IB, a wide ring-fence, an IB revenue growth-based strategy or a
continuation of the status quo if the group has to achieve its ROE target in
2016, in our view.

Block

BE

Estimate cuts look like this.

Block

BE

We cut our TNAV expectations further to incorporate an
incremental £0.5bn restructuring charge in 2015 for costs and increase our
litigation/redress cost estimate further by £0.5bn to £2.5bn. Our Dec-15 PT
falls to 285p. With the shares trading at 0.75x P/TNAV and 7.1x PE 2015E,
we remain OW with c22% potential upside, but continue to prefer Lloyds
(OW) within the UK banks

Block

PM

Deutsche have similar things to say

Block

PM

They’re also positive

Block

PM

Reckon that currently, at this level, you’re getting the former BarCap for free

Block

PM

let me share a bit

Block

PM

With Barclays hardly expensive on forward earnings to begin with the fall in
share price brings us to a situation in which a reverse sum-of-the-parts
valuation shows that buyers get the investment bank for free if we apply open
market multiples to the other divisions (Figure 16).
This is a valuation approach we’ve highlighted in the past (when the Barclays
share price was 30p higher). But similar thinking has seen the press reports on
suggestions that Barclays should spin off or list parts of the business in order
to confirm for shareholders the undervalued earnings power of the grou

Block

BE

This is Jason Napier, right? Noticed he’s rated #1 in the sector these days.

Block

PM

We think these suggestions are incorrect for the following simple reasons:
„ The market doesn’t need full-blown listings of businesses in the style
of Santander to see value. If the Santander case study shows
anything, it is that the market is prepared to ignore stub valuations.

Block

PM

Barclays effectively hit its PRA capital target at FY13. Selling even part
of one of your most attractive businesses, to the detriment of the
residual group ROE and business mix, to accrete capital you don’t
need makes no sense and will leave existing shareholders poorer in
the medium term.
„ On a UK retail sale /

Block

BE

(@fjp73: how old is that theory?)

Block

PM

Sorry, soemething wrong with this pdf

Block

PM

Or something wrong with me

Block

BE

Oh, never mind.

Block

PM

Jason Napier will have to wait for anotehr day

Block

BE

But before we depart banks.

Block

HSBC Holdings PLC (HSBA:LSE): Last: 594.20, down 3.7 (-0.62%), High: 597.10, Low: 591.40, Volume: 13.21mBlock
BE

Credit Suisse downgrade on that one.

Block

BE

Was all ready to do a “buy high, sell low” comment here ….

Block

PM

Hmm

Block

BE

But analyst Amit Goel was still in the money on his original upgrade.

Block

PM

They’ve abandoned their rather heroic target price

Block

PM

Think Amit was going for 780p

Block

PM

Now 580

Block

BE

CS upgraded in June 2012 when they were about 525p.

Block

PM

Ah, ok

Block

BE

Didn’t get out when they were 775p, admittedly. But better late than never.

Block

BE

Here’s the gist.

Block

BE

A longer wait, a smaller reward

Block

BE

Downgrade to Underperform and reduce our TP to 580p (from 780p).
We lower underlying estimates by 11%/12%/14% for 14E/15E/16E and, on a
stated basis, our estimates fall further owing to accounting changes. Whilst
we still see strong capital generation, we no longer expect significant
additional capital return in the next 24-36 months. Our preference remains
for HSBC over Standard Chartered in the UK/Asian banks space.

Block

BE

The global competitive position of the group is being eroded by UK
regulatory inflation: We have built a model for Pillar 2A requirements and
estimate 120bps for HSBC (note the company does not disclose this). This
implies a CET1 requirement of 10.7-13.2% before any management buffer
or sectoral capital requirements. This compares with US peers targeting 9.5-
10%; local players in Asia have less focus on these ratios. We are confident
HSBC can organically achieve PRA requirements over time, but question at
what cost to returns and competitive position. We estimate a c.12% RoTE in
the medium term, with capital return stepping up after 2016. We estimate
total capital requirements have increased by c.30% relative to
management’s targets presented in May 2011.

Block

BE

We are disappointed the group has been unable to capitalise on its
strengths, in terms of funding, liquidity and exposure to global trade. We
have been too positive on earnings and capital generation and are now more
concerned (given macro data) that the operating environment in Asia is
weakening, leading to further earnings risk. With confusion over the true
“underlying” earnings, we have modelled the group on a ‘core, non core’
basis to find a more realistic view on trends; we see further downside risk to
earnings estimates, notwithstanding benefits from rising rates.

Block

BE

To be fair to Mr Goel, his executive summary begins …

Block

BE

Why negative now and not six months ago?

Block

BE

A fair question and in hindsight we have been too optimistic on both the earnings and the capital requirements.

Block

BE

Yup.

Block

11:25AMBlock
BE

Smiths Group mentioned on the right, to some confusion.

Block

Smiths Group PLC (SMIN:LSE): Last: 1,269, down 82 (-6.07%), High: 1,300, Low: 1,257, Volume: 1.55mBlock
BE

Yey another engineer blaming sterling strength.

Block

BE

Like they all have.

Block

BE

2013 looks in line. 2014 guidance looks a bit weaker than assumed.

Block

BE

Medical seems to be the problem, notably underperforming.

Block

BE

Which makes me wonder once more about why they didn’t sell it.

Block

BE

RBC says this ……….

Block

BE

Weak H1 profits, cash flow. Results this morning were 2-3% below
our estimates and consensus, which had already moved down post a
lacklustre Q1 IMS. H1 sales/headline operating profits were £1,442m/
£245m. Cash flow was weak – falling to £30m from £71m (company
definition of free cash flow). Headline basic EPS of 39.5p was 1% below
consensus (detailed variance table overleaf). The proposed dividend of
12.75p represents a 2% YoY increase (4% increase in FY2014). The ‘fuel
for growth’ programme has been stepped up: previously this was going
to cost £100m to save £50m, with the £50m being reinvested in new
product development; will now cost £120m to save £60m.

Block

BE

Few surprises with new targets, margin upside a challenge. Smiths
announced new MT targets for Healthcare, Detection, Interconnect and
Flex-Tek. New targets are for: Medical sales growth of 0-3% (prev. 3-5%)
and margin range of 20-24% (prev. 20-24%, our FY2015 forecast 21.5%);
Detection sales growth of 4-6% (prev. 10-12%) and margin range of
14-20% (prev. 17-20%, FY2015E 14.3%); Interconnect sales growth of
3-5% (prev. 6-10%) and margin range of 16-18% (prev. 21-23%, FY2015E
15.7%); and Flex-Tek sales growth of 3-6% (prev. 0-7%) and margin range
of 15-20% (prev. 11-16%, FY2015E 18.5%). Smiths announced its new
targets for John Crane in December: sales growth of 4-6% (previously
6-8%) and margin range of 22-25% (prev. 19-22%, FY2015E 24.0%).

Block

BE

Medical unwell, a shadow of its £2.45bn former self. The biggest div’l
surprise was at Medical. H1 operating profit of £71m was 13% below our
forecast of £82m, falling by a low-double-digit percentage amount on an
organic basis for a second consecutive year. The H1 margin of 18.3% was
below 20% for the first time since 2009 with pricing, the medical device
excise tax and de-stocking taking its toll. It is difficult not to conclude that
in hindsight the £2.45bn which Smiths turned down in late 2010 was a
very acceptable price for Medical. We note that Carefusion in November
paid 11-12x EBITA for GE’s Vital Signs. Weakness at Medical was partly
offset by better results at John Crane, Flex-Tex and the corporate line.

Block

BE

“It is difficult not to conclude that in hindsight the £2.45bn which Smiths turned down in late 2010 was a very acceptable price for Medical.” ………….

Block

BE

Yeah, and turned down again last year.

Block

BE

The much hoped for Smiths break-up even less likely. We continue
to see Smiths struggling to achieve EPS growth above that of peers
and as somewhat less geared towards an economic recovery. The
new medium targets are broadly where we expected them to be. At
yesterday’s closing 1,350 Smiths’ shares were valued in line with the UK
Industrial Goods sector on a PE basis (16.0x next 12 months). On EV
measures, which take into account Smiths’ legacy liabilities (pension and
product related), the shares are valued at a premium. The weakening
Medical outlook and legacy liabilities make a break-up, the hope of
some investors in our experience, increasingly unlikely in our view.

Block

PM

No wonder the price is off 6%

Block

BE

Yup. None of it’s a surprise but all of it, as a sum, is rather bleak.

Block

BE

Sandy Morris and Jefferies say ……………

Block

BE

One day, perhaps 12 to 24 months from now, the trading backdrops in the Medical, Detection and Interconnect markets that represent around 60% of Group sales will improve, in our view. Meantime, having reported organic growth in sales of 5% and 2% in FY12 and FY13, respectively, Smiths has today reported a decline of 1% in 1H14. Given Detection enjoyed a weak comparative, the latter does look lacklustre, but not markedly out of line with many peers, in our view.

Block

BE

Heavy lifting. It has undoubtedly been hard work for Smiths to make headway. We note
that company funded R&D rose from £72m in FY08 to £112m in FY13 and increased again
in 1H14 by 7% to £57m (the related expense rose from £52.7m in FY08 to £82.6m in FY13). Investment has also been made in emerging markets although it appears growth here halted in 1H14, a little disappointing after growth of 14% in FY13. Smiths has also made headway in dealing with its legacy liabilities, the number of asbestos cases in which John Crane is involved having fallen from 136,000 at end FY08 to 81,000 at end 1H14 (81,000 at end FY13) and pension liabilities at end 1H14 standing at £236m compared with £620m at end FY12.

Block

BE

Coming around again. We sense a risk that some observers may be complacent about
another round of restructuring, a process that began in earnest in FY09 with a programme that was targeted to deliver savings of £50m and that was later extended to take total savings to £70m. Detection has enjoyed its own individual restructuring starting in FY12, just as the Group-wide effort concluded. Nonetheless, we believe the restructuring announced today – albeit flagged last September – is a more profound exercise designed to take Smiths to a new level in many respects. More particularly, it is clearly not intended to hold the fort against declining demand or to address a division that has markedly underperformed or suffered from poor execution.

Block

BE

We recognise, of course, that spending £120m plus some capital
expenditure on another round of restructuring must impinge somewhat upon the Group’s
ability to pay another special dividend like that of 30p announced with the FY13 results
(although Smiths had just aired its intent on more restructuring with those results). We also appreciate that the significant reductions in the divisional organic growth ranges could be used as a stick with which to beat Smiths, but the previous targets were set with the FY08 results and the world has moved on – generally in the wrong direction – since then. We find it hard to judge how the shares will respond to the 1H14 results, but suspect there will be some disappointment. Nonetheless, we do not view Smiths as an underachiever or underperformer given it faced some specific headwinds in 1H14 and are encouraged by the degree of vim shown by the Fuel for Growth programme.

Block

BE

Hm. Still looks like dead money to me.

Block

11:32AMBlock
PM

Here’s something a bit different

Block

PM

Well, just a little bit different

Block

PM

Mike Lynch has published an open letter to HP shareholders

Block

PM

it’s here

Block

PM

As you are aware, Hewlett Packard remains locked in dispute with a group of its own shareholders and with the former management team of Autonomy over its purchase of Autonomy. I write to you today to raise serious concerns about the way HP has conducted this affair, and to put forward a number of questions that HP management should answer. The evidence shows that HP is not just smearing us, but also misleading you, its shareholders. I ask you to help put things right.

Block

PM

etc

Block

BE

Think we noted previously that AutonomyAccounts.org was set up by a PR agency called Merchant Cantos, who seem to be empoyed to do Dr Lynch’s bidding.

Block

BE
BE

Dunno why Dr Lynch can’t make his own website. But there we are.

Block

11:35AMBlock
BE

Question about BAE on the right …..

Block

BAE Systems PLC (BA.:LSE): Last: 419.63, up 11.83 (+2.90%), High: 420.40, Low: 410.20, Volume: 5.07mBlock
BE

Were at UBS overnight

Block

BE

Talking about US spending improving …

Block

BE

Which was also the gist of an RBC upgrade yesterday, covered in your super soaraway FT this morning.

Block

BE

Here’s UBS’s notes on what was said.

Block

BE

the main points were (1) have some visibility in the US for the first time in
three years. Outlook very much as expected (previously believed that US would decline
10-15% from 2012 to 2015, now looks like 14%) and that 2014 would be the bottom
for BAE’s US sales (or very close to the bottom); (2) Expect Saudi services to grow as
more Typhoons enter service (aftermarket ~3x OE over 30 years); (3) Expect customer
prepayments to bottom in 2014, so should move towards much stronger cash flow in
2015; (4) Currently a faster buy-back than forecast.

Block

BE

We are currently forecasting 2% decline for most of the US businesses in 2015 and
2016 – if 2014 is the bottom, that could add 0.7p to 2015 EPS and beyond. We are
currently forecasting 4% long term growth in Saudi Support, but this could also be
conservative with the Typhoon fleet growing at about 10 aircraft per annum (currently
72 Tornados and 34 Typhoons in service) – 2% increase to growth adds 0.4p per share.

Block

BE

If the buy-back continues at the current rate, the £1,000m authorised will be
completed well before the end of this year (vs end next year forecast) – this adds about
0.5p to 2014 EPS and 0.25p to next year. However, we estimate that with
prepayments bottoming in 2014, BAE should return to strong cash generation and
could potentially buy back £400-500m each and every year, which would ~1.2p+ (3%)
accretion compounding each year.

Block

BE

Our price target of 460p is based on a fundamental valuation of 487p using cash
conversion of 95%, 5 year profit growth of 2.9% and a WACC of 9%, implying a fair
value multiple of 11.1x 2014E EV/EBITA, less a 5% discount for US defence uncertainty
to give 463p, rounded down to 460p.

Block

BE

BAE’s buying back about a million a day at the moment, I think.

Block

BE

About a quarter of daily turnover on a quiet one.

Block

11:38AMBlock
BE

What else?

Block

BE

Oh, while on UBS ….

Block

Imagination Technologies Group PLC (IMG:LSE): Last: 181.16, up 16.96 (+10.33%), High: 185.90, Low: 169.70, Volume: 2.05mBlock
BE

Big short squeeze going on there, clearly.

Block

BE

About 20% of its free float on loan, by memory.

Block

BE

There’s a UBS upgrade around, which I’ll get to shortly.

Block

BE

But also notable is that Android’s wearables thing launched yesterday includes MIPS as a lead partner.

Block

BE

This is the MIPS Imagination overpaid for last year in its hunt for a strategy.

Block

PM

So maybe it didnt overpay after all

Block

BE

Well, perhaps. Seems its silicon might — might — be found in things like this.

Block

BE

Block

BE

That’s Motorola’s watch cum whatever.

Block

BE

For people who need to know they have a project briefing with Whitney in 15 minutes in the main conference room.

Block

PM

A must have-not

Block

BE

,,,,,,,,, And don’t mind looking like a dork.

Block

BE

So ………….

Block

BE

Actually, Cazenove do some work on this.

Block

BE

Last evening, Google (covered by Doug Anmuth) announced Android
Wear, a project to optimize the Android OS for wearables such as smart
watches. Google has indicated that the Android Wear OS will enable users
to receive notifications, messages/chats from their connected
smartphones/tablets; allow voice based commands/actions and have health
and fitness monitoring features/apps amongst other multiple use cases that
could be possible with a wearable device. Google plans to release the
Android Wear software development kit (SDK) and APIs for developers
later this year to enable developers to build wearables specific apps. Google
has also announced lead partners for the Android Wear project and these
include several consumer electronics companies, namely, Asus, HTC, LG,
Motorola and Samsung; chip makers Broadcom, Imagination (for MIPS
CPU), Intel, Mediatek and Qualcomm; and fashion brands like the Fossil
Group to bring Android Wear powered watches/wearables later this year.
We note that LG and Motorola announced their first smart watches, named
LG G Watch and Moto 360, based on Android Wear. LG G smart watch is
expected to be launched in 2Q14 while Moto 360 is expected to be launched
in summer this year. Our View: That Imagination (for MIPS CPU) is
amongst the lead partners for the Android Wear project should provide a
more level playing field for the MIPS architecture to succeed in the
wearable space vis-à-vis ARM and Intel architectures. We note that MIPSbased
smart watches based on chips from partners are already selling in
China and Imagination’s early partnership with Google on the Android
Wear OS should give a further fillip to the adoption of the MIPS
architecture in the nascent wearables market with a significant growth
potential. While CSR is not the leading chip partner to Google on the
Android Wear project, we see the launch of the Android Wear OS as a clear
positive for CSR as it should likely benefit from the likely proliferation of
new wearable devices post the launch of the Android Wear OS for
wearables. Bluetooth smart is likely to be the key connectivity technology to
be incorporated in wearables and other emerging internet of things (IoT)
based applications and thus CSR, with its leading position in the Bluetooth
smart market, should benefit substantially over the next 2-3 year as these
new markets take-off. STMicro, with its leading position in sensors and
microcontrollers for wearables and IoT based devices, should also benefit.
We have OW ratings on CSR, Imagination and STMicro.

Block

BE

However, the real squeeze on IMG is on this upgrade from UBS.

Block

BE

Buy up to 200p, they say.

Block

BE

(1) Market share approaching the trough: Over the past three years, IMG’s
share of the graphics IP market (in royalty unit terms) has fallen from over
75% in 2011 to below 50% in 2014E and if we were to exclude Apple – IMG
has 29% share. At the current run-rate of c500m units annually for IMG
with half of this supported by Apple and with market expectations having
been significantly reset, we feel downside is now relatively limited.

Block

BE

(2) Industry stickiness remains low, opportunity to regain: The key reason
we have had Sell ratings on Imagination in the past has been the low levels of
stickiness inherent in the Graphics IP market. This has enabled the market
share loss that IMG suffered in recent years although but with IMG now
coming off a much lower base of market share this now represents a key
opportunity for the company assuming it has the right products to compete.

Block

BE

(3) Licensing showing signs of recovery: After 2-years of very weak licensing,
and especially relative to the trends of peers, IMG is now showing the signs
of a recovery. While IMG did have to slightly lower its licensing guide for
13/14E at the recent IMS, it still implies a significant recovery recently
providing some support for royalties to also recover going forward.

Block

BE

(4) Reactivity on opex: One of the main headwinds to earnings forecasts in
recent months is that whilst Imagination has been facing revenue headwinds,
opex has continued to rise substantially regardless. With the IMS in March
however, the company is showing signs of cost restraint which we believe
should pave the way for a margin recovery in years to come.

Block

BE

(5) Opportunities from new products from Apple: As the graphics IP vendor
of choice for Apple with IMG’s graphics used across basically all mobile
products, any new products here (as eluded to on recent conference calls)
could be positive for Imagination. Recent speculation (Bloomberg) has been
around either a more advanced Apple TV product or wearables (although
wearables may not include GPU).

Block

BE

(6) Opportunities from other IP families / PURE: Imagination also has a wide
range of additional opportunities from its other IP families from the
established MIPS CPU processor business (we remain sceptical), Ensigma
communications IP (good opportunity in Internet of Things applications) or
new families such as the Vision image processing IP or Caustic RayTracing
technology. We use this note to review the status of each of these products.
We also see some potential for IMG’s OEM business – PURE – could improve
its financial results as it should benefit in the growth of wireless speakers.

Block

BE

A lot of that looks like the triumph of hope over experience, but what do I know ….

Block

11:44AMBlock
PM

Look

Block

PM

Things are so dull

Block

PM

I just looked at a bitcoin related release

Block

PM

Who are Aite?

Block

PM

Partner, advisors, catalyst

Block

PM

Apparently

Block

BE

(@anthrax: yeah, I can talk for a time about traytracing versus radiosity on SOC payloads, but I doubt it’ll broaden our audience.)

Block

PM

Bitcoin, often touted as a sophisticated, digital alternative to traditional currencies, needs to address several fundamental issues outside the cryptographers’ realm before financial institutions embrace it, according to Aite Group. The primary use of the Bitcoin network today is the exchange of the Bitcoin currency—a unit of value that only exists in the digital environment. Aite Group’s research announced today examines the pros and cons of Bitcoin and determines what it would take to see wider Bitcoin adoption.

Block

BE

Aite?

Block

PM

In its latest report, Bitcoin: The Good, the Bad, and the Ugly, Aite Group has developed its understanding of Bitcoin and the ways that traditional financial services companies might engage with it. Aite Group spoke with a wide variety of stakeholders, including merchants, banks, regulators, and Bitcoin enablers. The research looks at the good, the bad, and the ugly aspects of the cryptocurrency and begins by defining the landscape and examining use cases where Bitcoin is seeing traction. It also examines the abuses that are drawing regulator attention as well as the obstacles that Bitcoin needs to overcome for further financial success.

Block

BE

Aite?

Block

PM

I really shouldnt impose this stuff on you

Block

PM

But here’s the explanatory image

Block

PM

Block

BE

Looks a quality piece of work.

Block

11:48AMBlock
BE

So what else? Have I mentioned it’s dull today?

Block

PM

It’s budget day

Block

PM

I’m off to Sweetings soon

Block

BE

I’ve a market report to write, saying “stocks were unchanged by the budget”

Block

PM

Ah, bu thte footsie is just about holding above 6600

Block

BE

And I’ll spend the afternoon fending off the news desk questions along the lines of, “how are utility shares doing? How are pub shares doing? How are housebuilders doing?”

Block

BE

Spoiler: nothing.

Block

BE

Anyway ……..

Block

PM

(keep it clean on the right)

Block

BE

Quick wander around the miners, then?

Block

PM

guess so

Block

Glencore Xstrata PLC (GLEN:LSE): Last: 307.05, down 4.4 (-1.41%), High: 311.85, Low: 305.50, Volume: 7.56mBlock
BE

Las Bambas still not sold, even after the Chinese suspended overnight.

Block

BE

(@Underminer: corporate news does, of course. General UK type news have higher priorities than the price of things.)

Block

BE

Strange holder statement out at midnight, telling us nothing we don’t already know.

Block

BE

Oh, and Antofagasta …

Block

Antofagasta PLC (ANTO:LSE): Last: 806.00, down 22.5 (-2.72%), High: 806.50, Low: 773.50, Volume: 1.84mBlock
BE

Post the big special dividend yesterday

Block

BE

People have, belatedly, started to say …. “hang on”

Block

BE

Such as Credit Suisse.

Block

BE

With the positive of better-than-expected cost-cutting now played out
together with heightened uncertainty around copper prices we downgrade
the shares to Underperform with an unchanged price target price of £7.5.
ANTO currently trades at a sizeable premium to peers on almost every
metric, we see limited near-term catalysts, and another large special
dividend look unlikely for at least the next two years (we expect the company
to move into a net debt position in 2015).

Block

BE

Investment Case: While ANTO benefits from good quality assets (second
quartile of cost curve, long life) the company is entering a multi-year
investment phase that will keep volumes relatively flat for the next 2-3 years
and capex elevated through 2014/15 at least. Higher Chilean corporation tax
and lower grades present medium-term risks, but should be largely
anticipated by the market.

Block

BE

Growth outlook muted without greenfield projects: ANTO reiterated
production guidance of nearly 900 kt by 2018. While this provides a
reasonable 4-5% CAGR on ’13 we do not see this level of production as
sustainable (due to falling grades) unless the company proceeds with the
140 kt CMD expansion, which will likely cost up to $2.7bn.

Block

BE

Earnings and valuation: Operationally the company is on track, and we
expect lower gross cash costs in ’14/15 compared to 2013 owing to a
weaker currency and real cost reductions of 3-5% offsetting inflation. We
make relatively minor earnings changes; however, we remain more than
10% below consensus and the company is trading at a substantial premium
to global copper peers on 2014/15 adjusted EV/EBITDA of c10x vs. 6-8x.

Block

BE

All this feels weirdly familiar.

Block

BE

Fags gives its majority shareholder a load of cash ….

Block

BE

But actual cashflow through the business looks unspectacular at best.

Block

BE

And the shares belatedly drop. Am I suffering deja vu or is this a replay?

Block

11:55AMBlock
PM

Okay,

Block

PM

We are near that point where we need to send the Rabble over to the Live Budget Blog

Block

PM

John Aglionby, Lina Saigol and Jonathan Eley doing that

Block

BE

(@Myselfandi: ask him yourself, I’m not his mum.)

Block

PM

So it won’t be as dull as i was wrongly suggesting earlier

Block

PM

it’s here

Block

PM

Do get teh comments going tehre

Block

PM

there

Block

PM

Hearing sig budget announcements on pensions and savings..Osborne’s “rabbit” for core Tory vote?

— George Parker (@GeorgeWParker) March 19, 2014

Block

PM

Wonder what that might be?

Block

PM

Thank you Outlaw

Block

PM

getting the comments going at http://blogs.ft.co…logs/2014-03-19-2/

Block

BE

Um ………… Because only Tories have pensions and savings?

Block

BE

Perhaps I’m missing some nuance in that.

Block

BE

Anyway, is it midday yet?

Block

PM

Yeah, let’s pack this in

Block

PM

Before the Footsie goes back to unchanged

Block

PM

Livelier tomorrow, promise

Block

BE

Emoticon

Block

PM

Cheers Bryce

Block

PM

heers Rabble

Block

PM

Cheers

Block

PM

Bye

Block