Friday, 19th October 2018

Live markets commentary from

VV75 morning


Blank canvas good morning everyone

Let's start by watching this a few hundred times:

Blank canvas another nice early start

Jeff Fairburn going through all the facial expressions

Grouchmonkey Morning!
alewis2005 I can't hear what the PR flak is saying in the background

Including a little bit of off-camera "I'm not angry I'm disappointed" stuff.

Lawro Oh Jeff! What a muppet!

Weird how he can't answer why he's justified to take a £75m bonus .......

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

... I mean, housing starts are .... back to where they were pre crash!



Which compares with a tenfold gain for housebuilder shares.

Excel Developer @BE: Snap! I was gonna post that tweet.

Anyway, you know where we are with regards HTB.


So. Where to begin?


The bid, I guess.

Intu Properties PLC (INTU:LSE): Last: 198.15, up 20.45 (+11.51%), High: 203.90, Low: 196.80, Volume: 7.52m

Indicative offer of 210.4p.


They're trading wider than that because there are conditions attached, which haven't been disclosed.


But the independent (!) Intu board has opened the books.

casapinos @BE can we introduce an "unjustified wealth order"?

And a deadline on the take-private consortium of November 1 to formalise the offer.

Soundbuy Kleinman just out re offer for London Executive Offices
Soundbuy ...............if you're talkng property.......

So .........all done? Maybe. Shareholders probably happy enough to take the 39% discount to last reported NAV, even though it's rather lower than what Hammerson didn't eventually pay.


Citi downgraded a tad early here.


In our downgrade note earlier this week we believed any buyer would want to access Intu with a share price implied portfolio yield beginning with a 6%, implying a price of 201p. The initial indication from the consortium of 205p adjusted for the dividend of 4.6p equaled 200.4p, in line with our 201p. Its subsequent increase to 210.4 equates to c5.9% implied portfolio yield. We therefore do not believe there would be much room to increase the offer further. Our price target (which does not assume bid spec remains at 190p).


And Berenberg held off until this morning.


Unlike the last Hammerson approach, this time we see
a clear rationale for a bid and think it more likely than not that the process will see Intu leave the public markets at a price in line with the indicative proposal. This approach was well timed; sentiment for both UK retail REITs and the wider retail sector is at its most bearish, Intu has no longterm CEO in place (with no further comment on succession) and the shares were trading at a 57.5% discount to CY 2018 NAV. This time there is only one set of shareholders to compensate; the offer, if forthcoming, will be cash based and Brookfield has a strong track record for executing complex M&A in listed retail REIT markets. With c30% of Intu’s share capital already under its control we see it more likely than not a bid is made.

JimboRock Renishaw please? My current falling knife purchase of the year

Should the consortium walk away, Intu’s shares would almost certainly fall to a lower level. Although there would be little earnings impact, sentiment would undoubtedly deteriorate further, while asset sales, necessary to maintain the LTV within target range, are likely to be delayed, increasing balance sheet pressure. However, this would be temporary; as proven by Hammerson’s Highcross disposal, demand still exists in the market, admittedly less deep and at a lower level.


Hammerson not really moving much, in spite of quite a few folk trying to argue that it's the next logical target (assuming Intu completes).

Hammerson PLC (HMSO:LSE): Last: 447.30, up 2.4 (+0.54%), High: 452.80, Low: 446.40, Volume: 912.40k
Imperial Goldsmith Anyone else find Nelson Peltz's son, Matt, staying in a Prem Inn as due diligence re Whitbread hilarious, or just me?
Imperial Goldsmith Has Matt Peltz been seen walking around a B&Q store lately?
Mouselet Good morning assorted people. I have been thinking Renishaw is richly valued and risky to buy since at least 2003

Renishaw? Righty ho.

Renishaw PLC (RSW:LSE): Last: 3,866, down 326 (-7.78%), High: 4,106, Low: 3,844, Volume: 76.74k
Mouselet at the moment I would have thought its valuation is entirely based on beliefs about mergers - if the animal spirits are lessening then fewer mergers and RSW worth not as much
Mouselet I've been local to them from time to time and they did impressive things at science fairs

Downgrades following a rather unconvincing Q1 yesterday.

Mouselet 'people will want to manufacture things more precisely' is a pretty good long-term belief statement

Which flagged "economic uncertainties in Asia"


Asia's 45% of group sales, with China alone responsible for c. 25%.

Manxish Morning peoples

Here's Stifel ....


We believe that tariff and trade concerns
are already having an impact on industrial/tech investment appetite in China, and that this could worsen. We note that overnight the International Federation of Robotics issued a report suggesting a marked slowdown in Chinese industrial robotics growth this year, with total global unit sales growth moderating from +30% last year to +10% in 2018. We believe that 2019 could be worse. We also expect a sharp slowdown in some important electronics markets for the group (particularly smartphone displays).


Hadn't previously heard of the International Federation of Robotics

Flaneur Read a great Brexit solution last night that I'd love to throw into the dog-pen that is ML.... but as its red meat, I'll defer to BE for permission to wander so egregiously off topic....
JimboRock Thanks, off to shout at my dog

Are those the guys who do the Robot World Cup?


Back to Stifel.


We thought that RSW would be able to provide some short term reassurance with its Q1 update, and as a result upgraded our rating from Sell to Hold earlier this month, despite considerable and continuing concerns on the outlook into calendar 2019. In the event, while revenue trends were relatively robust in Q1, against tough comps, Renishaw's margins were lower than we had anticipated, and year on year headline PBT down 9% in Q1. At the same time, we think that evidence continues to gather of slowing trends in key Chinese/ Asian industrial and electronics capex and robotics markets. Despite RSW's assurance that incremental investment should moderate beyond Q1, allowing margins to recover, we are cutting our forecasts (headline EPS reduced by around 6% for FY 2019: this is still consistent with guidance of (headline) profit growth in the FY). We also suggest that the recent derating of the stock may have further to run as market concerns on RSW's end markets grow. As a result were are cutting our TP quite substantially, from 4700p to 3600p, and downgrading our rating (back) to Sell. Renishaw is a great company, with strong long term prospects - but it is also cyclical and volatile, and we believe that the outlook through the next year is weak.


Gldman also cautious.


Or Goldman, if you prefer.


We update our estimates following 1Q FY19 trading update, cutting FY19/FY20 EBIT by 5.9%/5.6%, we are now c.2% below Reuters consensus (prior to the trading update) for 2019. Ultimately, we believe the update was consistent with recent news flow and our longer-term investment thesis is unchanged. Over the next 3 years we expect Renishaw to be one of the fastest growing stocks in the sector (9% organic sales CAGR vs. our coverage in the sector at 4%), but it faces headwinds from slowing end market demand (notably Asia electronics and automotive demand).


As a result of these estimate changes, we cut our price target to £54.20 (vs. £57.00) previously. We value Renishaw on an EV/IC vs. ROIC/WACC methodology using 2019/20 estimates and incorporate a 15% M&A weighting at 28x EV/EBIT (based on precedent transactions). Excluding the M&A component, our valuation implies a 21x EV/EBIT (2019/20E).


@Flaneur, feel free to chuck in anything you like, with the caveat that I reserve the right to ignore it.

Mouselet is interesting - a robot, built within a very vertically integrated company, whose role is to cover for ill employees

...... otherwise, at least among the fallers, it's a lot of known knowns.

Ashtead Group PLC (AHT:LSE): Last: 1,815, down 122 (-6.30%), High: 1,920, Low: 1,814, Volume: 1.32m

That's post United Rentals yesterday, as well as Bouygues this morning.

Maverick HAHA brilliant @ImperialGoldsmith
Soundbuy Elementis off note or just........zzzzzzzzz

Though Bouygues' warning seems to be quite specific to three contracts and not US, so unsure why there's a clear readthrough from that.

cheeckychappy @BE - heard anymore around Equiniti....
Tom Dalgleish Greenspan said US labour markets tightest ever. Doesnt augur well for stocks
cheeckychappy ?

Bouygues warns of cost overruns for two biomass plants in the UK and a data centre in Ireland


Plus a pipe-laying project in France, same thing.


Have Kepler to summarise that.


The group insists in the one-off nature of these problems. Four projects have encountered difficulties and this has generated cost overruns of c. EUR180m at the EBIT level (based on guidance). This is not linked to higher competitive pressure that would damage margins in all new contracts. The group reiterates its normalised margins for the three contracting divisions: 3.5% in Construction versus 3.1% last year, 8% in Real Estate versus 7.3% this year, and 4% at Colas, versus 3.1% this year.

Tom Dalgleish @BE anything leaking out about where the money went in Patisserie Valerie? No names of course

We cut full-year EBIT by EUR180m, as Bouygues now guides for flat to slightly down group current EBIT for the full year. Previously, we had an +11% increase. The group mentioned a decline of EUR140m for Construction. The rest is Colas. After taxes, all things being equal this translates into roughly EUR120m, or a 16% cut on EPS. Net debt guidance is unchanged as the group is now slightly more optimistic on the WCR change.


Also in the known-known category we have Pendragon.

Pendragon PLC (PDG:LSE): Last: 23.30, down 3.05 (-11.57%), High: 25.15, Low: 20.65, Volume: 4.78m
Soundbuy @Tom - thought there simply was no profit(eroles)
Tom Dalgleish so it buffered "profits"

New European emissions thing's kicked the chair out from under new car sales. We know. The data are public.


Have Berenberg fon that.


We have cut our UK retail EBIT estimates by c65% for Inchcape – see our Q3 in focus as retail profits set to weaken note – and Pendragon has clearly been affected by the same trend. Specifically, dealerships have faced new-vehicle supply issues following the introduction of more-stringent emissions testing procedures placed on OEMs. Given the impact to profit per unit, we reduce our EBIT margin estimate to c1.8% (in line with last year), cutting our EPS forecasts by 26%. Our prior estimates were, nonetheless, at least c10% above consensus. With the shares trading on a single-digit P/E, however, we believe warnings were partly expected. We continue to believe the value in Pendragon lies within its (i) used car, (ii) leasing and (iii) software businesses. In addition, c30% of the company’s market cap is expected to be realised through the sale of its US business. We therefore believe Pendragon has many avenues for value creation beyond UK motor operations. We retain our price target of 26p and Hold rating.


UK new car market in dire straits: The first half of 2017 in the UK saw inflated new car sales in Q1 ahead of a change in tax legislation on premium vehicles. This, however, made it difficult for the industry to achieve growth in H1 2018, leading to a decline of 6% yoy in that half. Growth in Q3 2018 has worsened, with the September trading period reporting disappointing sales figures. Specifically, September sales fell by c20% yoy. One of the key reasons why the new vehicle market has become tougher in recent months is due to more-arduous emission testing procedures placed on OEMs, namely the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). This has meant that many OEMs have delayed shipments of certain new vehicles to dealers. While we had predicted this would have an impact on Inchcape, given its brand exposure, clearly mass market brands (ie to which Pendragon has higher exposure) are also being affected.


Margin pressure inescapable: The challenge in any period of declining new car sales is that dealers are forced into a catch-22. Either they accept selling fewer cars and miss OEM volume targets or they pre-register cars and accept the resulting gross margin hit on both new and used vehicle inventory. Both can be equally damaging to the profitability of a firm. While Pendragon has done its best to dispose of new car franchises, it still has sizeable exposure here. Unfortunately, the company’s used-car-only operations are not yet big enough to offset this. Ultimately, Pendragon has fallen prey to trends we imagine will bite the rest of the industry.

Flaneur Sorry.... drifted away for a few mins. (ty @BE) The rather simple 'solution' to Brexit proposed was that England should leave the UK..... discuss or disembowel or whatever...
Soundbuy Described this am. as an 'old-school fraud'........

@cheeckychappy ... I can't help but suspect that's a leading question. But nope, haven't heard anything new on Equiniti.

Equiniti Group PLC (EQN:LSE): Last: 214.50, up 4.5 (+2.14%), High: 214.50, Low: 207.00, Volume: 257.45k
Tom Dalgleish fraud supposes a real person benefitted
Tom Dalgleish which case the business could be good
Blank canvas Flaneur: that will be the ultimate outcome as we are now watching the death rattle of the United Kingdom

There was speculation around late yesterday of a bid pending in the upper reaches of the FTSE 250, which I think was probably referring to Intu. Though I guess you never know.

rw42 I'd say the peoples perpetuating the fraud remaining employed in a bankrupt company could be considered a benefit!

I'd also note again that Equiniti's Ric Williams sold 15k shares at the start of the month.

Tom Dalgleish but Luke seems no dupe
Tom Dalgleish would one FT columnist rat on another?
mbt Reckitt Ben?

Pat Val ..... I'm afraid we have to wait for the company to clarify the accounting irregularities.


(@Tom: Mr Johnson isn't an FT columnist and hasn't been for some considerable time.)

Tom Dalgleish accepted BE
Patisserie Holdings PLC (CAKE:LSE): Last: 429.50, no change, Volume: 0.00

We still don't have a date for when they'll relist, though emergency loans/stock has been provided to prop it up in the meantime.


As Mark Brumby observed yesterday .....

cheeckychappy @BE - was just larking about and would like to retract that question about Equiniti so as to not cause any offence.

• Because the directors (probably bar one) and staff that oversaw recent events, presented numbers now known to be false and misleading to the stock market etc. are all still in place and the group’s shops, if over 200 of them are to generate revenues of £120m and EBITDA of £12m, are not very large and must comprise something of a tail.

• Replacing the directors might help. Breaking up and selling off the saleable bits of the company would be a quicker fix.


(@cheeckychappy:Teeth smile)

Tom Dalgleish PatVal a bit surreal though

Meanwhile, I'm yet to be convinced that we'll ever see them trade in London again. Unless you count Ofex or wherever.


Reckitt, as requested, is largely a sector effect.

Istrain Any grey on InterContinental Hotels?

Nestlé's Chinese baby formula doing well.


Suggesting upside when Reckitt presents Q3s itself.

tonyb what about Record PLC please?
Reckitt Benckiser Group PLC (RB.:LSE): Last: 6,657, up 185.67 (+2.87%), High: 6,667, Low: 6,465, Volume: 245.99k

Robust numbers posted by RB's IFCN competitors yesterday illustrate continued momentum in the infant nutrition category. Suggests potential upside to our Q3 LFL forecast of 4% for RB's IFCN. Next catalyst: RB to report its Q3 trading update on October 30th.


That's Merrill.


You also have Berenberg saying Danone's poor numbers don't have a readthrough.


Danone’s share price fell 5% after Q3 results, in which it warned about the outlook in Chinese infant formula, dragging down Reckitt Benckiser (RB) in sympathy and our forecasts for organic growth. We delve deeper into the market to assess its growth outlook and competitive landscape. Our findings suggest Danone is the exception, not the rule, due to different trajectories, expectations and positioning. Nestlé’s Q3 acceleration in China infant nutrition supports this view. Hence we see limited downside for RB’s organic growth ahead of Q3 results on 30 October.

1st Lt. Fletcher Christian You know any decent gentleman would have refused a bonus like that or openly donated it to a charity. He obviously isn't gentleman and is scum IMO. That is why society is broken. We don't need men like Jeff Fairburn on this planet.

China currently accounts for 70% of global infant formula growth and therefore changes in the market, which are common (eg consumer preferences, channels and regulation), have an impact. The country/category cell is amongst the largest for RB, Nestlé and Danone (4%-8% of sales) and all three companies have benefitted in 2018 from market buoyancy, as pricing headwinds abated and relaxation of the one-child policy led to a short-lived increase in births. Reliance on the category, however, is highest for Danone with infant nutrition driving c80% of group growth (versus c20% for RB and Nestlé).

mbt Thanks BE :)

Near-term volume pressure but long-term outlook remains solid: Volume growth will be negative in 2019E after a peak in three-year rolling births and population aged 0-4 in 2018. Stage 1 and 2 formula is already in decline whilst stage 3 (growing-up milk) is expected to soften next year. Mix should compensate, driven by trading-up and innovation (eg speciality milk formulas and new formats) resulting in low single-digit market growth. Over the long term, mid-single digit volume growth underpins high single-digit market growth; comparison with other markets shows upside to Chinese volume per capita consumption.

AC21 Anything on why DS Smith is down

Factors still favour global players: (1) Lingering safety concerns from the melamine scandal in 2008; (2) higher barriers to innovation and increased compliance complexity following 2018 regulation; and (3) superior R&D capabilities all drive demand for foreign imported brands. Route to market, however, is increasingly important in 2019 as e-commerce laws come into effect addressing the “daigou” industry, or C2C channel. Australian companies (a2 Milk company and Bellamy’s) and Danone are at highest risk from this shift.
● We expect RB and Nestlé to outperform: In a market where near-term volumes are expected to be negative we believe these two companies are beneficiaries of (1) channel shifts, (2) product mix or (3) self-help measures.

1st Lt. Fletcher Christian How about all those FTB at Persimmon who now will face a longer life of debt - probably right through to death! How about that Jeff?

China and HK account for 50% of total value sales of infant formula .....

Tom Dalgleish @Fletch, in one memorable case, a certain CEO who qualified B. Divinity was rewarded $60 million over a few years and only made noises about excessive exec pay as he retired
1st Lt. Fletcher Christian If we don't regulate capitalism better, Corbyn will be in. Mark my words.

irish hedge fund guy @flaneur, do share. The independent devolved northern Ireland part of 32 county Ireland and the UK at the same time? The canaries are Spanish and still have duty free status etc. The EU can be very creative as can the UK.

............. why?

Blockbuster Still, planetary excommunication probably a tad harsh.
Viking1 On Bloomberg : Maersk CEO playing down impact from US -China trade war.
irish hedge fund guy @Tom Dalgleish, accounting fraud is manipulation of debits and credits. Look at folli folli, Polly peck, etc. The numbers are just wrong, but they balance. Typically credit p&l, debit some fictional asset

On Elementis, two year low now.

Elementis PLC (ELM:LSE): Last: 207.80, down 11.6 (-5.29%), High: 219.00, Low: 207.80, Volume: 249.46k
irish hedge fund guy Not necessarily cash stolen which is theft
Tom Dalgleish @Irish, it seems a tour de force manipulation that NOBODY KNEW ABOUT

And there's a rump placing announcement on the tape as of 20 minutes ago.


Further to the announcement made earlier today by Elementis plc ("Elementis" or the "Company") regarding the results of the Rights Issue, the Company announces that UBS and HSBC (the "Joint Global Coordinators") have procured subscribers for the remaining 14,407,262 New Ordinary Shares for which valid acceptances were not received by 11.00 a.m. on 18 October 2018 (representing 12.41 per cent. of the New Ordinary Shares issued) at a price of 203.0 pence per New Ordinary Share.

The net proceeds from the placing of such New Ordinary Shares (after the deduction of the Issue Price of 152.0 pence per New Ordinary Share and the expenses of procuring subscribers, including any applicable brokerage and commissions and amounts in respect of value added tax which are not recoverable), if any, will be paid without interest to those persons who did not take up their rights in accordance with the terms of the Rights Issue, pro rata to their lapsed provisional allotments, save that individual amounts of less than £5.00 will not be paid to such persons but will be aggregated and paid to the Company.

Capitalised terms used but not defined in this announcement have the meaning given to them in the Prospectus dated 11 September 2018.


So, there we are. Supply/demand.

wayneJ I find it bizarre that a bank will lend me 90-95% to buy a house; ie upto 20x leverage but that no one would lend me at even half that ratio to buy property and house builder shares in 2010 - 2012
irish hedge fund guy @imperial goldsmith, why not. The cost of a room for Matt Peltz would be pocket money. I think TUI hotel division, with RIU is worth approx the same as their market cap. Spin off would create real value. TUI is too complex.

Was IHG mentioned earlier or did I imagine that?

InterContinental Hotels Group PLC (IHG:LSE): Last: 4,020, down 197 (-4.67%), High: 4,156, Low: 3,877, Volume: 401.69k
estrangedcapitalist Morning gents

Q3 disappoints. Revpar misses expectations.

Imperial Goldsmith Kingfisher my bet for Trian1

Though there's a special divi to take the edge off.

Viking1 WayneJ: look at the sub prime lending market in the US , housing and Auto2008 here we come
irish hedge fund guy @Tom, except the organiser, perpetuator. Aka perp in US legal parlance. There are electronic bank account confirmation methods now, my guess is GT relied on the old fashioned way to confirm £28m cash which was in fact a £9.7m overdraft. You could not make this up, seriously..

Caz can summarise.


IHG reported light RevPAR growth at +1% for 3Q18, with 2-Y trend deteriorating to 3.3% in 3Q from 5.2% in
2Q. The mixed performance is partly due a decline in the US occupancy YoY as 3Q17 benefited from strong
hurricane-related demand and tougher comps overall. Separately, management announced a special dividend of $500m (earlier than we expected) and remains “confident in the outlook for the remainder of the year”.


Room additions and pipeline. Net System growth +5.1% YoY, primarily driven by Greater China up
+17%. Separately, the pipeline was increased to 267k rooms from 262k in June (32% of total rooms).


RevPAR by region. Americas reported flat RevPAR growth (+3.4% in 2Q) and +2% 3Q YTD. US
RevPAR was down 0.5% driven by mid-single digit occupancy decline in markets which were impacted by
the hurricane-related demand (commenced in 3Q17). Continental Europe RevPAR growth came in at
+4.3%, UK was up +1.1% with strong demand in London from leisure guests and the biennial air show,
offsetting softer occupancy in the Provinces. In Greater China, RevPAR grew by +4.8% (+9.3% in 2Q) on
tough comparable. Middle East and Australia declined by LSD impacted by new supply while Japan was up
by +2.5%.


Keith Barr, CEO comment: “We delivered a good third quarter performance. Our strategic focus on
improving our rooms growth yielded strong results, driving net system size up 5.1% and our best
performance for signings and openings in a decade. The fundamentals for our industry remain strong. We
are confident in the outlook for the remainder of the year and in our ability to deliver industry-leading net
rooms growth over the medium term.”

estrangedcapitalist I'm like a young Gordon Gekko today
irish hedge fund guy Of course at the end of the last audited financials the numbers may have differed slightly. Also amazing the market cap of Pat Val, CAIE, was 1/3rd higher than comparable Costa coffee multiple..

And Barclays can say, "meh".


We do not expect FY forecasts to move materially. We forecast 2018E EBIT of $815m vs. Vuma consensus of $810m.

1st Lt. Fletcher Christian @wayneJ HTB reduces lending risk and pretty much the price premium HTB has created goes on to the builder's bottom-line.

As can Morgan Stanley.


At this stage we would expect to trim our EPS forecasts in the low to mid single digits for the weaker RevPAR performance partly offset by stronger net room openings and hotel signings. We currently model 2.9% group RevPAR for FY18 (implying 2.8% in Q4 vs 1.0% in Q3) and 1.5% for FY19, and note the business model is not particularly geared to RevPAR (1% RevPAR = $13m EBIT = 2% to EPS). Our EBIT forecasts are $815m for FY18 and $870m for FY19, a tad above consensus of $810m and $869m. The shares have now dropped 22% since their summer highs and trade on a more reasonable multiple of 16.0x FY19e P/E and 12.0x EV/EBITDA, with a 6.0% FCF yield (going into a 2.2% dividend yield and 5% special dividend).

estrangedcapitalist btw gents, just as bud fox would call the Wall Street chronicle in the movie Wall Street and leave "bluehorse shoe loves blustar airlines"
estrangedcapitalist I'm living similar tips with the ft hotline
Blank canvas Noonday gun. Gin bottles uncorked. Many thanks for everything this week.
1st Lt. Fletcher Christian Yes, thanks BE and friends on ROTR. Good weekend all.

And that, I guess, will do.

Istrain Thanks for the grey on InterContinental -
Manxish Thanks BE, Rabble. A good weekend to all!
Soundbuy Bon w/end all........

Ta as ever for the comments. Back next week, which is half term so expect things to be even more patchy than usual.

Excel Developer cheers Bryce

Afternoon all.

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