Monday, 15th October 2018

Live markets commentary from


Hi, hello, good morning, welcome.

Blank canvas good morning everyone
TonaldDrump happy happy royal baby day

This is Markets Live, FT Alphaville's daily whatever.

VV75 morning
LJ morning all

Don't be encouraged by us starting on time. It's likely to be the only competency on display over the next hour. We've peaked early.


So anyway, where to begin?

LJ Surprised by the lack of commentary over the weekend around EQN. Thought last weeks article might flush a buyer out into the open
Blackbag99 A meeting starting on time, its just not British!
Soundbuy Morning

There's Brexit, obv. And there's a couple of warnings.

Manxish Morning each

The company that makes hoodies seems to be getting a lot more press this morning than the one that makes catheters, despite the latter being much bigger than the former, which is a form of media bias I guess.

Pharma @BE, by "we" do you mean you and the hamster have, or are you including the ROTR?Probably fair comment either way. "Good morning" is about the height of financial analysis on this side.

The bias being "we don't want to write about catheters".


There's also, finally, this story.

Greencore Group PLC (GNC:LSE): Last: 200.30, down 7.2 (-3.47%), High: 225.10, Low: 187.65, Volume: 16.06m
Kiwi-juice Request for DIA (Spanish food retailer), looking like a death spiral

Weird! Announces a big, strategically important disposal at a very good price and the shares go down.


It's almost like the hot money that crowded into this thing expected something else.


What was it that we wrote last week?


Blackbag99 Greencore, all cash, what's not to like?
Belle GMChina easing again. 3m SHIBOR about to tick down past Aug low on recent comments from PBoC. Seriously cancelling out Trump's trade pol.
Belle All one huge mess they're causing.

But let's recap. Greencore's selling Peacocks back to the company from which it bought Peacocks, more or less, at a pretty exceptional price of nearly 15x ebitda.



Blackbag99 Greencors doesn't trade at 15x ebitda?

And management will do a special div to compensate for the rights issue used to fund the purchase.


It's a simple capitulation. Which is something you don't see much.


Here's Peel Hunt.

Blue horseshoe... 9.9pc short GNC

Greencore has sold its US operations for £817m, which equates
to 13.4x EBITDA and will pay a special dividend of 72p
(£509m). The buyer is Hearthside, which is a PE-backed
co-manufacturer. The special dividend is dependent on
agreement with the debt holders, albeit that should be
The company now targets ND:EBITDA of 1.5x to 2.0x with a
pro forma level at the bottom end of the target range. At first
sight pro forma EPS will be c11p (prior to share consolidation) vs
the target range of 14.7p-15.7p for last year. If we put that on
12x it would give 132p of value or 204p including the special
dividend. The pension deficit will remain with the business and
we would expect the dividend to reduce proportionate to the
lower earnings.
In the short term the shares are likely to firm due to short closing,
however there are a number of shareholders who are not natural
holders of Greencore in the long-term who are likely to exit

CockneyRebel Pure speculation on my part but any idea why has GRG has rallied the past week nearly 10% while the market tanked? Could it be WTB just getting the voting okay to sell Costa and the £3.8bn burning a hole in their pocket to replace it? Probably not but weird how GRG has rallied against the mkt imo.

And Kepler ....


The sale of the US business for USD1.1bn was unexpected


Uh, really?


... but implied a
good price for the assets of 13.4x EBITDA. Proceeds will be largely
returned to shareholders with a 72p or GBP509m super dividend. We
applaud this fast track to value creation for Greencore shareholders.
What remains is a strong UK food-to-go business with attractive growth
and return potential, which is valued on a pro-forma basis at about 8-8.5x

Blackbag99 When is the earnout on special divi?
Blackbag99 Cause it might be worth taking the payday
urgeview lol cockers, you don't seriously believe wtb are going to buy achain of small bakers , do you ?

On paper, buying something for 10.4x EBITDA then selling it for 13.4x EBITDA looks pretty positive. But, as I say, the folk buying Greencore of late probably aren't all that interested in what it actually does.


@Blackbag, deal completion November 2018, cash of 72p and bondholder approval needed so no specific timeline.

LJ i would imagine payout would be next year at some point, maybe alongside Final?
CockneyRebel GRG coffee voted higher than Costa's by British Public - Costa had 1200 odd shop, GRG has about 1100, GRG valued @ £1.1bn, Costa valued @ £3.8bn - looks a similar footprint at a snip imo

(@CockneyRebel: in speculation terms, that's pretty out there. For starters, why on earth would Whitbread holders want to pay a 30%+ premium for a business with basically no synergies with Premier Inn, and which most of them own anyway?)

CockneyRebel About a dozen stocks managed gains over the past week or so, GRG gained about 10% - quite a market buck for no reason imo
Blackbag99 Amen BE, Costa looked fully valued
urgeview Yes ,but wtb bought costa for approx 87million or lower before building it up ?
VV75 Can we talk a bit about the placing at 50p in Valerie, if you have time at the end of the hour?

Let's keep on with the corporate stuff. We can back into £ and China and whatever else a bit later.

Superdry PLC (SDRY:LSE): Last: 826.00, down 189 (-18.62%), High: 850.00, Low: 788.00, Volume: 873.26k

Profit warning. Weather, just like the old days.

CockneyRebel Well perhaps WTB wouldn't be the after them but what explains a 10% rally like that in this market - that was better than nearly any other stock, only GNC came close imo

Warm weather affects the "Jackets and Sweats category", which is 45% of sales.

Pi1010 I think we used to call it Superdroop back in the day BE!
CockneyRebel The chart broke out too - takes some doing in a tanking market full of fear imo
Excel Developer Landlord purchases down 30% in 3 years

Wholesale and retail both suffering. Management talking (for approximately the thousandth time) about diversifying product, which will take 12 months or so.

TonaldDrump so they're actually hoping the weather is superwet?
CS1 Julian Dunkerton has just opened his organic cider shop down this part of the world, wonder if it will be super-dry :)

You'll remember Superdry (when it was called Supergroup) would habitually announce that it was stepping back branding and going leftfield into less skittish, TK Max-ish sectors.


Hasn't worked yet, so no reason to think it will soon.


Added to that you have a hedge that didn't work.

Blackbag99 Any views in why a Patisserie doesn't know what its delegated authority is? Or its Auditors? That's a stay clear from me.

Meaning an £8m hit on FX.

Blackbag99 @VV75

Plus a ramp up on investments. £5m going on marketing, digitisation, automation, product development. That kind of thing.

Pi1010 Supercry?

Have some RBC

Pharma @Excel, that data point is meaningless without knowing what level of landlord *sales* there were. It is only the net figure that gives you any sense of whether the BTL market is shrinking, staying flat, or still growing.

In the near term, the stock is under pressure on deteriorating top-line trends (part cyclical part structural), with an unbalanced product mix, inventory rebase
overhang and expected inventory file consolidation (wholesale into retail/online) expected in 1H19 which creates additional execution risk in our view. Given the
number of stores, slowing top-line trends will impact operating margins in our view.
Longer term, we view Superdry as an interesting growth story, with multi-channel expansion opportunities led by e-commerce. Free cash flow is healthy and
shareholder returns (potential special dividends every few years) are attractive in our view.


And Peel Hunt.


Taking account of the £18m impact from FX exposure and sales shortfall, coupled with a further £5m from acceleration digital sales investment in H2, we downgrade our 2019FY PBT estimate by £25m to £87m, 84.9p and push through similar cuts to 2020FY to be prudent, despite the one off nature of the downgrades. After this morning’s share price fall, the stock has held onto its c10x PER. This still underplays the strength of the group’s balance sheet and the global prospects, although investors will need to see an acceleration in performance over peak to re-instil confidence in execution.

Excel Developer @Pharma: need the underlying Hamptons International note. @All, anyone got this, please place in Long Room.

@Blackbag, thanks for that advice to stay clear of Pat Val.

Patisserie Holdings PLC (CAKE:LSE): Last: 429.50, no change, Volume: 0.00
TonaldDrump @BE How is MIFID II going to affect you posting snippets of research from brokers?
CS1 @BE: was it £8m or £18m FX impact?

(@CS1: £8m FX, £10m trading.)

CS1 @BE: Tks
Baru Thoughts on Musk's move into tequila and (as of this morning) Pacific Rim-style fighting robots?

To catch up on the news, the Sunday Times had this: https://www.thetim...-8c08-eb796229e9cb


The board of troubled cafe chain Patisserie Valerie has discovered that overdrafts of almost £10m were run up on two secret facilities, The Sunday Times can reveal.

Company overdrafts had been set up with Barclays and HSBC, and £9.7m had been used by the time they were discovered last week. The disclosure caps several days of astonishing developments at the listed cafe chain that have left its executive chairman, the entrepreneur and Sunday Times columnist Luke Johnson, fighting for his fortune and reputation.

Johnson, 56, said it had been “the most harrowing week of my life”.


My heart bleeds for him.

qwerty Superdry. At least it now knows the effect of a SALE which wasn't always the case!
Blackbag99 No worries BE, but a board that doesn't know what its delegated borrowing authority does, is not in charge. Shareholder raid on to repay bridging loan. Ouch
Finlay How does a company have £10m in overdrafts without any board member knowing?

Oh, and I passed by the Pat Val in Hammersmith on Saturday, which had this on the door ....


Blackbag99 @ Finlay, they delegated the power. In reality they shouldn't be surprised
Pharma @Finlay, the FD was presumably on the board, so that's one director at least who knew.

Do landlords usually act that quick? Or are we seeing a historic issue that's been brought to a head by recent events?

Finlay Sorry - Meant the rest of the board? So it only takes one board member sign off ?

Dunno. Not had time to look into it.

Excel Developer @BE: (Guessing from a point of ignorance), have CAKE:LSE defaulted? Doesn;t that trigger covenants?
qwerty Patisserie. The monthly board meetings must have been interesting when overdrafts were not discussed. Perhaps the FD had a memory loss!
Blackbag99 @ Finley, it would be weak if only one member knew
TonaldDrump landlords in london are notoriously quick - always a stream of tenants waiting
Pharma @BE, one of the frauds (alleged) may have related to not paying rents, and hiding the paper trail.

(@TonaldDrump; I'd be extremely surprised if there were a list of tenants at the Kings Mall in Hammersmith, which increasingly resembles the set of a zombie movie.)


Okay, so would we rather talk about Brexit or catheters?

Finlay @Blackbag99 weak or fraud? Company, banks, auditor - I doubt many will come out of this well.
dfd Not paying rent; not paying HMRC; you would think that would keep them afloat without additional £10m o/d. Suggests money smuggled out.
Excel Developer Brexit too complicated at the moment.

Let's dovetail them together. Here's Citi.

SoS Cathexiters
Pharma @BE, some of us would say the EU is taking the piss, so there's not much to choose between them.

According to media reports including on Politico, the Telegraph and Spiegel,
Prime Minister Theresa May and Brexit Secretary Dominic Raab vetoed an
apparent technical-level agreement on the draft withdrawal treaty over concerns on the Northern Irish border backstop. Former Brexit Secretary David Davis had called for a cabinet rebellion against an indefinite customs union, while the
Northern Irish DUP, but also Scottish Conservatives, opposed Northern Ireland staying in parts of the EU’s Single Market. A UK government statement said that there were still “unresolved issues” but that it hoped progress would be made at the summit on Wednesday. The EU cancelled the Sherpa meeting scheduled for today and according to media reports such as by Der Spiegel, there are no more meetings scheduled until the EU summit on Wednesday. That makes it unlikely that the EU27 leaders can sign off on a draft withdrawal & transition treaty and call a final negotiation phase until another summit on 17/18 November to also
finalise a political declaration on future relations. EU27 ambassadors called on the Commission to step up the ‘no deal’ preparations, with several media reporting that the EU Council will call the 17/18 November summit to speed these up.

Blackbag99 @Finlay, to get to fraud it would mean weak procedures. That's the Board and the Auditors in the frame too. Its material sums, it should never go to the authority of one!
GBKrona both pls - Brexitiers are taking the P155
Excel Developer Carl Weinberg High Frequency Economics: "Brexit means Stagflation, back to the 70s for Britain."
LK Hyman @ Baru Musk's Teslaquila sounds like bad news for Diageo's Casamigos
Blackbag99 Americas join the Big box destruction in the UK. Sears?

Comment: As we wrote on Friday, The Next Hurdle Is Always The Highest
and this is only the next of many remaining hurdles before the UK enters a
transition phase on 29 March 2019.

Blackbag99 Interesting, far fewer mall anchors in the US

Although the talks got stuck in Brussels, this remains almost entirely an intra-UK negotiation, where the Prime Minister may need some more time [and perhaps some cooperation from the EU side] to secure a safe passage of the deal through Parliament. If the summit on
Wednesday calls the 17/18 November summit anyway (even under the ‘no deal’ pretext), the timeline remains largely unchanged. Of course, all other options remain on the table: a leadership contest against Theresa May, another election, a second referendum or plain procrastination. If the latter, Parliament would most likely get a major role on 21 January 2019, at which point we expect a majority in Parliament which is opposed to ‘no deal’ to take control to avoid that scenario.


£ is flat on the day.


At least in £ terms.


As for the Convatec warning ....

ConvaTec Group PLC (CTEC:LSE): Last: 155.05, down 69.15 (-30.84%), High: 175.00, Low: 155.00, Volume: 6.35m

CEO's off, taking a fall for repeated disappointment since the float.

Plato the Cook Does the £ ever move much against the £?
wayneJ There is an 'interesting' video on Twitter of Alastair Campbell, on Irish TV, telling Nigel Farage to 'own his S***' - very telling that when Nigel Farage asked for his plan for Brexit witters on about the PM but unable to say what he would do; in the end Campbell explodes at him. There is now a video / song on the topic as well.
Maverick Morning Bryce, just wondered if you have heard anything similar to Mr Harrington r.e. Equiniti from your own sources?Many thanks.

Goldman can summarise here.


ConvaTec pre-announced 3Q18 revenues 2% below company-compiled consensus and GSe, with organic revenue growth 140bp below consensus, and 150bp below GSe. Following the weaker-than-expected 3Q, and given anticipated de-stocking in the infusion devices business in 4Q18, the company has lowered FY18 revenues and adj. EBIT margin guidance; the revised guidance is 4-9% below consensus at the top and bottom end. In addition, the company announced that Paul Moraviec, CEO, is leaving with immediate effect; Rick Anderson - who is an independent non-executive director of the board, but previously served as the group chairman of Johnson & Johnson - will assume the interim CEO role while the company conducts a search for permanent replacement.

Excel Developer @waynej: I've seen the first part of that. got a link for the full edition?
Kiwi-juice Convatec: another PE company which IPOed with superb success

We see today’s announcement as disappointing, not only in the context of our thesis - which is predicated on improving execution, accelerating growth, and delivering margin improvement - but also given management’s positive comments at our September conference. We place our estimates, price target, and rating under review.

Excel Developer

And Numis.

wayneJ @Excel - sorry not easily from corporate network. Well worth searching for it. Can imagine that going forward TV audiences and crowds will be chanting the specific phrase to Brexiters.

Forecasts implications: we now forecast 0.2% organic CER growth and 23.5% EBITA margins for FY19 which drops down to 16.3c (NSe 17.1c, c’sus 17.2c). For FY19 we now forecast +1% organic CER revenue growth with 23.5% EBITA margins for 16.6c in EPS (from 17.8c) for a 7% downgrade.

Shinshin @excel Open Europe: No material negative impact from Brexit.

Potential opportunity: Ultimately the statement reads poorly, but on our first take, the EPS downgrade is just 5% and should the shares fall materially this morning we could see an interesting buying opportunity with the performance of the chronic care business (ex-ID) showing continued steady growth.

Kiwi-juice CTEC: how to kill a golden goose. Check the competitor Coloplast, they seem to be earning a good living in this industry
wayneJ Ah - found it -

Float was at 225p if memory serves.


Nordic Capital and Avista Capital Partners were the sellers.

hedgehog pm to make a statement on brexit later (yawn)
Excel Developer why the ukakele?
Manxish @Shin - assuming there's an agreed and ratified deal of course, otherwise: "Open Europe argues that a No Deal exit from the European Union would be sub-optimal and would entail some material costs."

And if I remember correctly, a competitor from the low countries stepped into a price war nearly immediately after the float.

wayneJ Would SuperDry be an attractive tuck in brand for someone? Thinking that at this valuation P.E. must be using slide rules? Also capital markets day tomorrow?

Denmark, Coloplast, that was it. Thanks Kiwi.

Excel Developer Alistair Campbell should own his sh*t in regard to Blair/Brown years building tiny numbers of council houses. He helped caused Brexit due to housing crisis.

(@Maverick, on Equiniti: nope. Nothing to add to what we've written already.)

Maverick Cheers

(Everyone else, on Musk, nope. It's Monday. Don't make me have to think about that preening dork.)

Flaneur On Brexit - I reckon May will get a deal that 'excludes' NI. She'll then put this or a 'no deal' choice on a referendum, killing 2 birds with one stone.The EU are gunning for the DUP so whatever happens, their interests will get chopped. UK will get a 'good' Brexit but the price is NI.
Excel Developer @Flaneur: but General Election (GE) requires parliamentary assent under Fixed Term Parliaments Act and a referendum needs an Act of Parliament, more work to pass the Ref than GE
wayneJ DUP has said that they won't blink first and have cut their eyelids off; and that their lines are 'blood-red lines'. These guys have a 'strong view'
TheManwithaLongChin What makes you think the people in NI will ever stop voting DUP?

So ........ what else? There's IQE.

IQE PLC (IQE:LSE): Last: 85.40, up 4.6 (+5.69%), High: 85.95, Low: 82.95, Volume: 1.68m
cloudy @Flaneur - And right at the end of everything is . . . Gibraltar. Oh dear!

Which usually brings out the green ink mob whenever we mention it.

cracklenpop @qwerty - Dunkerton sold £71m Superdry shares in the summer - just saying:

They've brought in Tim Pullen, ex of Arm.

wayneJ @Cracklenpop - that is part of what makes me think is Superdry without defences?
Blackbag99 @Flaneur - And right at the end of everything is . . . Gibraltar. Oh dear! Why?

Or .... still of Arm? Whatever. here's his CV: https://www.linked...iginalSubdomain=uk

Pharma Speaking of green ink mobs, the comments in Colby Smiths Turkey story ( show impressive levels of pro Erdogan trolling.

And here's Peel Hunt.

Big Red DUP used to hard ball politics, given their history. I reckon that the EU is now crossing the line and actively interfering in UK internal politics. Ultimate objective to force new referendum.

Having joined ARM mid-2017 as CFO, Tim Pullen’s focus has been primarily
on the investment strategy and on scaling its finance capabilities. Previously, he
gained broad-based FD experience across important business units within several
technology (eg O2) and outsourcing (eg Serco) companies. He qualified with
E&Y. Tim is to join IQE early 2019 following his notice period at ARM.
We remain convinced by IQE’s strong position within a complex value chain
beniffiting from multiple structural growth drivers. Since we initiated, nothing
we have been presented with by the IQE bears (eg PMD/Infineon ToF,
Mirowave ToF, Multi-camera depth-sensing, Aixtron sales to China, Finisar
qualifications, etc, none of which is new news to us) is, in our view, dilutive to
our Buy stance. We think market sentiment towards the VCSEL supply chain
will start to improve as we see new phones with facial recognition outsell
expectations, helped further by the announcement of new form factors (eg
Tablets) adopting the technology. It is therefore time for the reader to
revisit our recent initiation, especially, given the recent volatility


In the limited background reading we have done so far, we were impressed by
some of the commentary Tim has offered to publications such as The Finance
Director. He discusses, with detail, how during his time at O2, he pragmatically
championed better management control systems to help O2 become more of a
data driven organisation. He also talks about his close collaboration with the
CIO/CTOs at O2 to ensure innovation is well managed (‘fail fast’). This speaks
to the need for nimbler R&D opex/capex, something that was flagged at the
recent IQE CMD. All this is music to our ears. Just within O2, he was FD at its
£0.5bn digital business, then at its £1bn O2’s enterprise business and finally at its
Operations and Digital Transformation division. He also served as a director at
O2’s JVs with Tesco (Tesco Mobile) and Vodafone (CTIL). We think this
broad-based experience at O2 will be very relevant to his role at IQE. Given IQE
is primarily a multi-national outsourcing business, we think his FD experience at
Serco is invaluable to helping IQE in its relationships with a complex supply
chain which serves dominant OEMs. He has previously worked at Fujitsu and
Dell having qualified with E&Y.

Patience @Blackbag99 - Gibraltar same border problem as NI :-(
cloudy @B99 right at the start of the Brexit thing we were told we would have to cede Gibraltar back to Spain. It's not been mentioned since.
wayneJ @Big Read - or alternatively EU is sticking to its rules. And simply asking the UK govt to honor the GFA and the already agreed backstop.

Which .... great? I guess? He's not Arm old guard, Warren East generation, or even that familiar to the public markets, so it's difficult to know what to do with the news really.

Blackbag99 Nope! Its a hangover from colonialism. The Utrect treaty says it cam only be owned by Britain or Spain, so prevents release.
Pharma @wayneJ, GFA says nothing about border checks, but it would be breached by keeping NI in the customs union while the rest of the UK left.
wayneJ The ARM old guard is Robin Saxby generation.
TheManwithaLongChin If the EU cared about the GFA they would stop the nonsense about a backstop and let us negotiate a proper long-term agreement.

(@wayneJ: that's the name I was looking for! Thank you.)

Excel Developer Well, we need expert analysis on Brexit, anyone got the Pawel Swidlicki Edelman public affairs consultant note?
wayneJ The CTA (common travel area ) - I need to verify but did it originally proceed the GFA?
FATDAZ Whole Irish Border debacle could be solved by referencing the relationship/ border arrangements of the Channel islands to Europe i would suggest but no one seems to want to investigate that approach
Pharma @wayneJ CTA was formed in the 1950s.
CS1 @wayneJ: yes it did
wayneJ See

...... just spooling back through comments. There are already 1,236 reader opinions voiced on this Brexit story and I'm struggling to see the value of adding to them here:

wayneJ Don't laugh - the British imposed entry controls on Ireland during the French Revolution! (above wikipedia page)
Excel Developer @BE: can you request a note from , he has done the parliamentary arithmetic on Brexit.

Sears .... meh.

wayneJ @BE - we could go all the way back to Sophie Wilson and Steve Furber?
cracklenpop @pharma CTA's been around since 1922 and the formation of the Irish Free State.
Blank canvas Midday already. Thanks for Greencore, and the early start. :)

Debt repayment looming ..... interesting for lots of reits who have Sears as their anchor malls .... but until someone reinvents what to do with big shops, that's going to be a story we tell a lot.

Electric Dragon There may be 1,236 reader comments on that article, but I expect there aren't more than three or four opinions (if you're lucky), merely voiced with different degrees of loudness.
Excel Developer Bank Of America earnings beat. 66 vs 62 EPS
Pharma @cracklenpop - must be another UK-IRE treaty I'm thinking of. Certainly something signed in the 50s that formed links predating the EU.

Though, on that theme, did you catch Sports Direct buying Frasers in Glasgow?


Which the Guardian calls "the Harrods of the North", because they've apparently never heard of Jenners in Edinburgh. https://www.thegua...rrods-of-the-north

cracklenpop @Pharma either way, FoM between Britain and Ireland predates EU membership by decades.
Excel Developer No bounce in sight for SP500.

Anyway, it's still to be examined what Sports Direct wants with these huge shops no one else can fill. And the answer may well be in the Sports Direct portfolio, which is rather more diverse than "last year's trainers and huge mugs".

Tom Dalgleish @Excel, typically the bounce is post midterms
Excel Developer @Tom Dalgliesh, ah good. you mean skip the whole October then. I concur.

Chuck in a Cruise, a Flannels,a golf shop, maybe some e-gaming arena nonsense in the basement and you've reinvented the department store.


Though concept versus execution may be a the issue there, as should be obvious to anyone who's been into Lillywhite's.


But I'm just waffling now. Let's wrap up.

Excel Developer cheers bye
Manxish Thanks BE, Rabble
Soundbuy Cheers
Maverick From what I've heard one of the plans was to divide floors between DW sports gyms, Sports shop and high end shop...

Ta for the comments. Apologies if it was a bit rough -- there were other things going on this morning and I was woefully underprepared.

Tom Dalgleish @BE, I was reading today about an Israeli company that can detect what a shopper takes off the shelf and where that person goes with it reducing shoplifing (circa 4% of gross) to that done by employees only
Maverick Many thanks as always Bryce, have a good week.

Back tomorrow, when hopefully we'll be in better shape.


Afternoon all.

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