Friday, 14th September 2018

Live markets commentary from

VV75 morning

Hello. Good morning. Hi. This is Markets Live, FTA's thing with the etc.

Soundbuy Morning all

Have you read Brendan on Waffle House? https://ftalphavil...fle-House-does-it/


It's an excellent, possibly even heartwarming story of a normal sort of business doing things in a normal sort of way.

Grouchmonkey Morning
Maverick Good morning all
Sails Rather good that Waffle House story
Excel Developer Any dead rat bounce?

Which involves throwing a lot of smart thinking and a heroic amount of work at the apparently simple task of feeding people for not much money.

Blank canvas good morning from Stuttgart

And it sits on the main index as a perfect counterpoint to .....


Soundbuy Morgen..........

A story of a gonzo sort of business doing things in a bizarre sort of way, where it throws a lot of smart thinking and a heroic amount of work at completely unproductive nonsense.


Buy Waffle House, Sell Musk. That's what I'm saying, I guess.


Okay, so onwards with Friday. What we got?

Flaneur When do we get to rag on Carney?
Excel Developer House Price Crrash?

News is a bit thin, with the exception of the Investec breakup story.

Investec PLC (INVP:LSE): Last: 529.40, up 44.7 (+9.22%), High: 547.60, Low: 521.60, Volume: 2.12m

Asset management spinoff inside 12 months .....

Excel Developer Is it me or is FTSE100 rubbish? 6999 by year end.
Soundbuy Carney - the world's gonna end and we'll all be eating our pets.............zzzzz

..... leaving the UK market with another quite dull asset manager and a subscale South African bank that some might argue lacks focus or purpose.

Pharma @Flaneur, I imagine that you rag on Carney every day, so don't let us stop you.
Soundbuy ..............and your house will be worth a tad less...........
Pharma @soundbuy, lots of horses kept as pets round my way, so should be OK for the first six months or so.
Helen78 Anything on Sky? Are we heading for sealed bids next week - when was the last time that happened for a FTSE100 business, BAA?
Manxish Morning all

Investec's rather under-covered by the sellside so comment's sparse. Here's James Hamilton, who's retopped a note he wrote a few days ago.


Overall, a mixed statement, with asset management ahead, but wealth and
specialist banking behind expectations. The group has also announced its
intention to separately list the asset management business on the LSE in the next 12 months (the group "may retain" a minority stake), which in our view should make the value in the group clearer.
Investec reported core customer loan balances of £23.7bn, a 5.5% decrease and -10% vs. our forecast of £26.2bn, although credit looks OK with an impairment charge of 0.21-0.25% expected compared to our recently increased expectation of 0.35%. FuM increased 4% to £167.0bn and 4% ahead of our forecast of £160.8bn with net inflows of £5.0bn against our forecast of £3.6bn, split Asset management £4.4bn (£2.9bn) and Wealth management £0.6bn (£1.7bn). Overall, revenue is expected to be modestly ahead and costs higher than expected due to growth in headcount to support activity levels and regulatory requirements.

Soundbuy @Pharma - top man.......don't forget the salad..........
Excel Developer Horseradish?

On the IB .....

Soundbuy Ho ho............

Investec has a very diversified and global Asset Management business, which now has AuM of £167bn. Of the UK listed Asset Managers, it is probably most similar to Schroders, with more of an Africa bias. Longterm performance is good and net flows have been consistently strong. Investec has built this business organically from scratch, creating a substantial amount of shareholder value along the way. The Wealth business has largely been built through acquisitions, which have consistently been made at the right time of the cycle and have been delivering substantial synergies. The business is very UK biased and it is most similar to Rathbones, although it is larger and more profitable. Organic net flows have also been consistently strong and this business is currently building an online capability that we believe will vastly surpass anything that any of the other Wealth Managers has to offer clients. While Asset & Wealth account for less than 39.5% of the group's profit, we estimate that they account for 61% of the group's valuation.


Course, the follow-on question relates to whether a spun out IM business would be a target in the ongoing sector consolidation ......


..... Which I mention as a hypothetical. But it's an obvious hypothetical to raise.


Yeah, great, thanks for your help ROTR. Carney. Sure. Carney.


Mark Carney, Bank of England governor, has delivered a “chilling” warning to Theresa May’s cabinet that a no-deal Brexit could lead to economic chaos, including a property crash that could see house prices fall by a third.

Mr Carney told ministers that in the scenario of a disorderly Brexit, the BoE would not be able to avert a crisis by cutting interest rates — as it did after the 2016 referendum vote — and that inflation and unemployment would rise.


Seven hundred and forty-eight comments on that story at pixel time.

Pharma So Carney thinks he "averted crisis" in 2016 with his 0.25% interest rate cut.Possibly the funniest thing I've heard all week.

Oh, isn't Carney speaking again now? Dublin speech scheduled for now-ish?


Anyway, everyone's so entrenched in their views both about the BoE governor and the Brexit clusterflux that we're well past the point of being able to say anything interesting or useful.


So, if you want to talk about how chaos is in fact good, ROTR, knock yourself out.


I'm moving on.

VV75 thank you

So ................. what else we got?


You may have seen that Ben did one of his mysterious headlines late yesterday:


VV75 clickbait?

And if you want to see what Fevertree Drinks is said to do, you'll need to pony up the cash.

Excel Developer "clusterflux" great non-rude alternative word there.
Lemmy said to mix well with gin?

Over here, on the free internet, we can do not much more than retread what was said on Wednesday.


Which is, to remind, that there's a very strong rumour around

Pharma said to the Bishop?
Excel Developer Ah yeah, Fevertree bounced but then fell below opening, nice bit of raw there.
Soundbuy Jeez - FEVR just put on 1% in 30 secs............
Grouchmonkey said to go down like a stick at some stage?

The gist of which is that Fevertree received interest from a number of parties and is in response working with banks on a strategy

Excel Developer I'd short Fevertree right now, as the AV ML bounce will surely wear off.
rise2010 FEVR P/E=96 seems like a bargain

You'll also have seen some of the press post us flagging the rumour on Wednesday, such as this in the Times:


[T]he shares eventually closed down 64p at £38.32 after a source close to the company made clear that there was nothing happening, declaring: "We don't comment on market speculation or rumour, but, of course, are aware of our obligations as a listed company."

Soundbuy It's off.............for now +3.8%

Hm .... "a source close to the company made clear that there was nothing happening"?


Is that really what the "source close to the company" has said?


(Also, why would a "source close to the company" refer to the company as "we"? Another thing to ponder in your Journalism 101 classes.)


Being "aware of our obligations as a listed company" might simply mean that they don't think a statement is required.

Soundbuy Given some fodder for the Sunday press..........
Tom Dalgleish @BE whereupon the question becomes whether the "source" was near illiterate or capable of dissecting words

What to read from that? Dunno. The Takeover Panel moves in mysterious ways, as we've noted a few thousand times in the past. Usually in quite annoyed terms when something we wrote here didn't trigger a statement then got announced.



Soundbuy Is there a bandit rating here?

Fevertree. It's very very expensive, but that's not stopping some very shrewd people buying it.


(Which is a pretty good slogan for the product, come to think of it.)

Fevertree Drinks PLC (FEVR:LSE): Last: 3,860, up 66 (+1.74%), High: 3,866, Low: 3,810, Volume: 63.34k
Soundbuy Or have they left with PM?

(@Soundbuy: we've stopped using bandit ratings because people in regulatory jobs misunderstood them and thought they referred to specific bandits, rather than classes of bandits, so went on a modern-day equivalent of a Snark hunt.)


Okay, what else? Sellside? Sure. Sellside.


And Hurricane Energy, a popular punt among the punters.

Hurricane Energy PLC (HUR:LSE): Last: 54.15, up 2 (+3.84%), High: 55.00, Low: 53.15, Volume: 3.90m
VV75 381p I heard
Soundbuy Fair dos..........

Because it has all the ingredients: huge billion-barrel resource and a totally unproven route to actually getting it out of the ground.

VV75 unproven only in UK waters BE..

Morgan Stanley summarises:


Hurricane in-place oil volumes are ~9.3bn bbls. It specialises in geologically complex 'Fractured Basement' reservoirs, a new play type for the UK. High uncertainty over recovery underscores company estimates of contingent resources of ~2.3bn bbls.


However, shares incorporate value for only 45mn bbls of reserves: The high risk and uncertainty over recovery of reserves has led the market to price information in the line of vision.


Despite strong performance YTD, we estimate the share price incorporates only a 6-year Lancaster Early Production System [EPS] program, due to start in early '19, and the 50% GWA farm-out deal.


Sure, yeah, it's really useful abbreviating your production system as EPS. That makes it really easy to search for in financial research bumf.


So, let's kick on with the bull-bear. It's wild.



[Crocodile Dundee voice] That's a fan chart.


Our base case, excluding value for
contingent resources, implies 27% upside: We
assume 10-year Lancaster EPS and 8-year
GWA EPS program unlocking value for 74mn
bbls of reserves


But the upside could quickly move – our
bull case implies ~600% upside. Assuming
$10/bbl value for to ~785mn bbls of
Lancaster and Lincoln 2C reserves, we arrive
at a 292p NAV. Assuming $80 oil prices, we
see potential for a bull-case NAV of 381p.


Our bear case implies ~65% downside:
Negative EPS results could lead to a total
reset of current plans. We assume lower
production for 6-year Lancaster EPS and
$50/bbl oil, leading to a NAV of 18p.


So, buy. They can't put a price on this thing but buy anyway.


We initiate an Overweight rating, given the
27% upside in the base even without the
value of contingent resources, a significant
~9.0x skew between bull case upside and
bear case downside, and potential for value
to be realised suddenly.


We do not set a Price Target: With the wide
range of valuation outcomes and uncertainty
even in the base case, we think assigning a
price target is not relevant at this time.

VV75 thank you for that
DRichi Could be 18p or could be 381p? That's casino style investing for sure....
Electric Dragon "what I tell you three times is true!"

(Bloomberg) -- Fevertree Drinks rises as much as 4.7% after FT Alphaville chat discusses a ’strong’ rumor that the co. has received interest from a number of parties and is working with banks on a strategy.

Grouchmonkey Famous this thing is, famous.

$24k a year to read paragraph summaries of what I'm typing. Odd world.


What else? Sky mentioned earlier.

Sky PLC (SKY:LSE): Last: 1,570, up 13.5 (+0.87%), High: 1,578, Low: 1,565, Volume: 2.14m

Final offers due September 22


To remind, Fox has a 1400p offer and Comcast is 1475p

#REF! I've just signed up for a FT sub, happy to pay for good journalism. iirc it was slightly less than 24k... so Bloomberg must be reeeeeeeaaaly good :)

After that we get up to five days of blind auction. And in answer to the earlier question, I've no idea when this last happened.


It also seems reasonable to ask whether this neverending takeover saga is taking a toll on Sky's operational performance.


As it stands, Sky doesn't really have a long-term fibre strategy. At least, not one that it's told us about.

Grouchmonkey Kier seems perky today. Is that just ahead of the trading update, which I seem to remember is due next week? (Disclosure: I have some and they're still below what I paid :( )

And relies on an MVNO agreement that doesn't have an obvious route to move into 5G.

KT Sky bidders may want to factor in my severe disgruntlement. Sky fitted my dish, now won't fix it because their H&S rules have changed and no-one can get to it. There is no alternative to the dish - no fibre option - so I leave for BT.

Plus the various football auctions, including the UK Champions' League, plus the carriage agreements with FTA, plus how to tackle the march of Amazon.

Lemmy Previous sealed bid auctions include Debenhams in 2003
Div @BE - Corus in 2008?
chad_john @BE + Kodi.

Dunno. This could well be a "winner's curse" type auction.

KT @Lemmy @Div bodes well...

FWIW, Macquarie goes up to £15,50 as the likely winning bid price.


Cautioning, "It may be difficult for Comcast to secure the minimum number of
votes (50%) to win Sky without the agreement of Fox and/or Disney."


Thanks for all your sealed-bid suggestions. Clearly less rare than I thought.


As for Kier .....

Philruffin on fevr ln, what is your opinion about the insiders transactions reported on 6 augustus and 24 july?

Haven't heard anything other than Canaccord buying ahead of the numbers.


(@Philruffin: see Wednesday.)

Philruffin in relation to a possible bid.
Lemmy Philruffin: this was noted earlier this week on ML

Also note that it's very heavily shorted so doesn't take much to get it moving.

Kier Group PLC (KIE:LSE): Last: 990.50, up 30 (+3.12%), High: 1,002, Low: 960.50, Volume: 146.52k

Here's Canaccord's preview


The recent trading update confirmed that underlying profit and earnings
would be in line with expectation, so there should not be any surprises
in the results. Year end debt is expected to be between £170m and
£190m with average net debt of £375m. Comments on order books and
the outlook should all be relatively reassuring also given the group’s
focus on its core areas of infrastructure and residential markets. We
expect the focus to be on the balance sheet and net debt outlook given
recent issues and concerns in the sector. The market will also focus on
what the group says about its “Future Proofing Kier” strategic initiatives
and how this is expected to impact margins, cash-flow and net debt over
the medium term. We expect the group to deliver underlying EPS of
c.116p for FY 2018 with net debt at £178m. Shares have been de-rated
significantly recently and now trade on a FY2019E PE and EBITDA
multiple of c.7.0 times and 6.5 times respectively.


Liberum also buying.


Kier is one of the most shorted stocks in the UK (10%). Are the bears onto something, like Carillion, or are they setting themselves up for a short squeeze, like Ocado? Given the amount of gratuitous mud that has been hurled at Kier recently, it is inevitable that some of it sticks. They are a UK domestic. They have been a large user of exceptionals. They have benefited a little from acquisition accounting. But many of the bear points are plainly ill-founded; notably around construction cash and the JVs. In our ‘ten reasons why the bear case is bull’ we seek to put the record straight. We also show how even a very harsh assessment suggests that leverage is affordable, as long as trading holds up. At the FY results next Thursday management will get its chance to make its case and we expect it to make some compelling points. A CY 2019 P/E of 7.0x and yield of 7.3% are simply too cheap. BUY.

Sails "UK house prices falling by a third a blessing for many"

Also supplies "Ten reasons why the bear case is bull", which is quite an aggressive comeback.


See Barclays here for a reminder of the bear case: https://ftalphavil...tslive/2018-06-07/


Liberum saying Keir's much less of a domestic cyclical than claimed, because it's in dull stuff like highways and infrastructure where cyclicality is pretty small.

KT If house prices fall by 1/3 overnight something truly catastrophic has happened to the UK economy, which suggests that fewer people will be able to borrow to buy a house and banks probably won't be eager to lend anyway.
GBKrona @Sails - how electable will the Tories be (ever) if that happens under their watch?

And the "too much debt" argument is misplaced because ......


In the harshest basis we can muster we derive a 2019 net Debt EBITDA of 3.0x. That includes valuing the pension deficit at 5x the deficit recovery vs. no IAS 19 deficit going forward. Adding in the Property and Residential assets this harsh measure falls to 1.0x. Management targets £20m to £40m p.a. of de-leveraging and as EBITDA grows Net Debt EBITDA will fall even faster.

Soundbuy Cheers left and right....................Bon w/end............

Also, exceptionals have been bad but usually relate to overseas ops and acquisitions so they're unlikely to be a feature near term.


Also, JV debt is non-recourse so doesn't add risk in any meaningful way.

Blank canvas thanks for everything this week...

Plus .....

SoS @KT Strikes me banks shouldn't be eager to lend at the moment

There is no need to adjust for the valuation for JV debt since the returns already reflect it. The £21.4m of ‘operating profit’ for 2017, confusingly but in line with the accounting standards, includes ‘the share of post-tax results’ in joint ventures; i.e. it is after interest. In addition to the off-balance sheet debt there are also off balance sheet assets. We expect greater disclosure on the JV structure and components at the FY results.

Tom Dalgleish @KT I witnessed Hong Kong house prices falling 50% in a fortnight and life went on
Tom Dalgleish SARS if you rememebr

Plus you get defences of reverse factoring, receivables and fair-value accounting. It's a quite interesting defence.


Did you guess that Liberum is Keir's house broker? You did? Super.

Sails @GBKrona - not very electable by some, but only some

We're done. That's yer lot.


Thanks to the comments for commenting, and to the lurkers for lurking.


More stuff here, as usual:


Afternoon all.

Pharma @BE "comments for commenting". Are you implying we are all bots? Fair enough.
Excel Developer Vote Leave didn't cheat
Excel Developer bye
Div Bye All
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