Further further reading

Posted by Cardiff Garciaon Jun 29 21:57.

For the commute home,

– Back to dollar, dollar bills, or, rappers against the Euro.

– Guide to writing about Greece for people who can’t bear to write about Greece.

– Fed raises swipe fee cap, Visa and Mastercard shares climb.

– From Tech IPO land: here comes Living Social.

– So much for the TMX-LSE merger.

– Stacy classy, JP Morgan.

– The macroeconomics of doing nothing.

– Geithner’s letter to Republicans re: the debt ceiling.

This entry was posted by Cardiff Garcia on Wednesday, June 29th, 2011 at 21:57 and is filed under Capital markets.

A deleveraging detail

Posted by Cardiff Garciaon Jun 29 21:34.

Credit Suisse have just published a note that adds a small bit of nuance to the US deleveraging narrative.

Household debt as a percentage of disposable income is the ratio typically used when discussing the progress of US debt reduction. And by this ratio, although decent progress has been made, it remains well above the 84 per cent average that prevailed in the 90s:

The deleveraging since the crisis thus far has been the result of both voluntary (frugality and paying down debt) and involuntary (foreclosures and writeoffs), with the latter still accounting for most of it.

Credit Suisse, however, point to a limitation of the debt-to-disposable-income ratio: it doesn’t take into account the prevailing interest rates on the debt owed. And as interest payments are a key component of the payments that households are actually making on their debt, the ratio isn’t a comprehensive measurement of the economic stress on households.

Credit Suisse explain, and point to an alternative:

One of the risks of an elevated debt-to-income position is that it leaves households vulnerable to such potential financial shocks as job losses and prolonged illness. As an indicator of this type of stress, however, debt-to-income ratios have some drawbacks. Most glaringly, they don’t account for the interest rates households are paying on their liabilities.

In this regard, measures of debt service burdens have some advantage over traditional debt-to-income ratios.  Debt service calculations can be thought of as the share of income committed by households for paying interest and principal on their debt. They can provide some guidance on the likelihood households will default on their obligations when they suffer unexpected financial adversity.

The household debt service ratio (DSR) calculated by the Federal Reserve is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

And the decline in this ratio looks a bit more favourable…

… and is the result of both deleveraging and the steady decline in interest rates of the last several years.

Of course, rates can go up as well as down, and the debt service ratio has a problem of interpretation similar to that of other deleveraging data — specifically, that it’s hard to know who’s doing the paying down, and of what.

Scenario 1:

The debt service ratio calculations presented above should be interpreted against the backdrop of nearly seven million fewer employed Americans today than in late 2007, with all the loss of individual and household income that implies. One reasonable inference is that the balance sheet repair of the 91% of the workforce still employed has advanced  even further than the aggregate figures would indicate.

Scenario 2:

However, there is an alternative possibility. If one assumes that households suffering from unemployment are highly correlated with those who have been foreclosed on homes and/or lost access to credit cards, then – perhaps counterintuitively — their debt service ratios would plunge toward zero, suppressing the aggregate measure. In this second scenario, the remaining 91% of the workforce still employed would have a higher DSR than the overall figures suggest.

So the ratio contributes to understanding the aggregate economic burden on households, but is best used in conjunction with other indicators that measure household balance sheets.

Full note in the usual place.

Related links:
US deleveraging isn’t just about defaults and charge-offs – FT Alphaville
Household deleveraging flattened in Q1 – FT Alphaville

 

This entry was posted by Cardiff Garcia on Wednesday, June 29th, 2011 at 21:34 and is filed under Capital markets. Tagged with , , .

Myspace sold

Posted by Cardiff Garciaon Jun 29 20:11.

March 2006, Fortune:

“It looks like the best acquisition we’ve made in a long, long time,” Peter Chernin, the second-in-command at News Corp., said in an interview with FORTUNE. “MySpace is the single biggest growth opportunity this company has.”

June 2011, All Things Digital:

Closing another chapter on one of the Internet’s most iconic properties, Myspace has been sold to to Specific Media, an advertising network, for $35 million. …

News Corp. bought Myspace for $580 in 2005, and made that back via a lucrative advertising deal with Google when the social networking site was flying high.

According to FT Alphaville’s resident guy-who’s-good-with-calculators, Bryce Elder, Myspace’s value dropped roughly $174 a minute under the ownership of Rupert Murdoch. (UPDATE — caveat lector: this is a back-of-the-envelope calculation.)

Reuters

“Not funny, dude.”

This entry was posted by Cardiff Garcia on Wednesday, June 29th, 2011 at 20:11 and is filed under Capital markets. Tagged with , , .

Waiting for a Chinese local debt disaster

Posted by Tracy Allowayon Jun 29 16:11.

Standard Chartered analyst Stephen Green has been on the trail of China’s local debt saga for ages now.

Monday was a big day for him.

China’s National Audit Office released figures showing its municipalities owe a whopping Rmb10,700bn ($1,650bn) in debt, equivalent to about 27 per cent of China’s economy and outstripping the central government’s officially declared debt balance of less than 20 per cent of GDP.

Yet Green figures the NAO estimate is actually a low-ball figure. To take into account informal liabilities, you need to add another Rmb4,000bn. Those would be liabilities that might not be legally enshrined, but when push comes to shove, the authorities will probably need to take responsibility for them.

If you include the extra RmB4,000bn, you get total public debt that looks more like this:

Specifically, it would be about RmB 28,198bn worth of formal and informal public debt combined at the end of 2010, according to Green’s estimates — or about 71 per cent of China’s GDP last year.

Now, that looks bad. But as StanChart notes, China is also generating a lot of tax revenue at the same time. Compared to, say, Italy or Greece, who have high debt and low growth, China is in a much better place.

Of course, that doesn’t mean the local debt problem isn’t, well, a problem. Reports are already coming in that China’s local government investment vehicles (LGIVs) are beginning to default, apparently.

Note how the problem has been solved to date — and what’s now changing:

Reports of LGIVs in Yunnan province and Shanghai telling their banks that they can only repay the interest, rather than capital, on their loans signal the beginning of a wave of difficulties, we believe. There are likely thousands of anxious bank branch officers, LGIV CFOs and local government officials out there. We assume that the LGIV loans are mostly bullets, and 3-5 years in term, so the pressure for repaying principal has not yet hit. But it will begin in 2012-13. The interest burden of around 6% on local government/LGIV debt is much higher than the 2% that the MoF is currently paying on outstanding central government debt. If one assumes that local governments and their vehicles have total debt of CNY 14.7trn (as we do…), and that all of it is bank debt, then the interest due this year will be around CNY 880bn (USD 134bn). This is a tremendous amount of money, equivalent to 21% of local government tax revenues in 2010. (This would be a big number even if we had clear evidence that local finance bureaux had budgeted for these payments, which we do not.) Land sales around the country continue to do much better than many had feared, and should be providing precious cash flow. But interest payments will mount up, the credit markets will become less welcoming (quotas for debt issuance by LGIVs are being squeezed), and banks are under instructions to stop extending credit to LGIVs (although they still appear to be doing so), so it is no longer easy to take out new loans to repay old loans. At some point, the legacy will have to be recognised

As we have explained before, there is a game associated with how LGIV loans go bad and/or get resolved. No one wants to be the first in the country to have a LGIV blow up in their district. As a result, whenever a LGIV is unable to cover its interest, a small meeting will likely be held between the LGIV, the bank and the local government to find a way to resolve the issue. Loans will be extended; new collateral offered; assurances made. As the pressures build, such meetings will become ever more difficult. We assume that at least CNY 4-6trn of LGIV loans – and possibly much more – will ultimately not be repaid by the projects, and this shortfall will need to be addressed. In addition, the central government will have to assume the CNY 5.7trn of local government debt. At some point, the central government will have to enter the field – it cannot have rumours circulating about hundreds of LGIV defaults undermining confidence in the banking system. However, the end game is tricky because:

You might be wondering, at this point, whatever happened to the great $464bn bailout of Chinese municipal debt, reported by Reuters late last month. Unfortunately the bailout appears to have been nothing more than a Ministry of Finance research paper, according to Green.

Which means something else might soon have to be discussed.

Related links:
China’s uncollateralised, cash flow-less, local government loans – FT Alphaville
China’s great central economy, and big local problems – FT Alphaville
So tell us Mr Chinese official, do you have a debt problem? – FT Alphaville
Introducing Alphachat, the FT Alphaville podcast – FT Alphaville

This entry was posted by Tracy Alloway on Wednesday, June 29th, 2011 at 16:11 and is filed under Capital markets. Tagged with , , , .

BarCap barks at the IEA

Posted by Tracy Allowayon Jun 29 15:15.

The IEA slaps speculators … The speculators swat right back.

The FT has kept busy reporting how the International Energy Agency’s decision last week to release 60m barrels of oil reserves has burned some energy traders. In particular, trades based on the relative price differential between Brent crude and Dubai crude have apparently suffered, as the spread between the two has plunged to a six-month low, dropping nearly 50 per cent in just four days apparently.

Anyway, here’s Barclays Capital’s commodities team on Wednesday:

The IEA’s rationale to lower oil prices in order to support economic growth is flawed at several levels, we believe, not least due to the fact that stronger macroeconomic growth is perhaps the biggest catalyst for higher oil demand growth and hence higher oil prices. A form of economic intervention, IEA’s actions are likely to be fraught with the laws of unintended consequences. Indeed, in a world where both supply and demand responses are becoming more inelastic in nature, prices have to play a large role in helping to allocate resources efficiently. This involves not just incentivising new (costlier) supplies to come onstream but also to ration a level of demand. Given the limited opportunities for substitution out of oil in transportation in the near term, the importance of sending the correct price signal to encourage long-term substitutability through R&D and market incentives is paramount. The IEA’s intervention is likely to provide very little incentive, we believe, if any at all, to change consumer behaviour or encourage alternatives. In our view, it sets an untenable precedent in the market for the use of SPR as a means of lowering prices (irrespective of supply outages). Worse still, emerging market economies are often criticised for not allowing their consumers to face the true price of oil through heavy subsidies, thereby keeping demand inflated. We fear the IEA has done exactly the same in the OECD now.

Yeah. You tell ‘em, BarCap.

Related links:
Peak oil is not synchronous – Early warning
BarCap says speculators not to blame! – FT Alphaville, 2009

This entry was posted by Tracy Alloway on Wednesday, June 29th, 2011 at 15:15 and is filed under Capital markets, Commodities. Tagged with , , , , , .

Austerity passes 155-138, markets shrug

Posted by Cardiff Garciaon Jun 29 14:52.

So that’s that.

Other than the outcome and the protests in the streets, there was just one bit of drama related to Wednesday’s fiscal austerity vote in Greece, as reported by Reuters:

Only one member of Papandreou’s Socialist party voted against the law and the speaker of parliament announced he had been immediately expelled from the party.

One deputy from the conservative opposition cast a vote in favor.

And it seems the outcome had been priced in. At pixel time the Eurostoxx 50 and other stock markets across Europe had barely budged. Same for the euro. A bit more from the FT:

The euro had spurted to a two-week high of $1.4447, up 0.6 per cent as traders awaited the outcome of the Greek vote – though clearly the market’s wholesale switch to “risk on” suggested a “yes” had been discounted.

A “yes” was duly delivered, and, typically, the market reacted by taking profits in the single currency, leaving it up 0.2 per cent at $1.4394.

The region’s bourses are also off their highs but still enjoying strong gains, with some speculating that end of quarter “short covering” is providing extra propulsion. The FTSE Eurofirst 300 is up 1.4 per cent, reflecting a positive performance out of Asia, which added 1.4 per cent.

And to give you something more interesting to look at… here are some stills from CNBC’s recent Greek coverage.

This entry was posted by Cardiff Garcia on Wednesday, June 29th, 2011 at 14:52 and is filed under Capital markets. Tagged with , , .

Bank of America’s settlement

Posted by Cardiff Garciaon Jun 29 14:15.

Remember those blemished Countrywide loans and the pointed letter from RMBS investors that Bank of America received last October?

The bondholders had alleged that Countrywide had failed to meet certain underwriting standards for the loans included in these RMBS deals and had improperly serviced the loans, and had breached representations and warranties.

Well, several news outlets (the Wall Street Journal had it first, and here’s the FT) reported last night on the expected $8.5bn settlement reached between the bank and the aggrieved parties, and earlier this morning BofA confirmed the details in a statement.

The original letter was sent by 22 investors, who named 115 deals worth $47bn, of which these investors were reported to have owned between a quarter and half. But, as the WSJ explains:

The group has since expanded to 530 bond deals originally valued at $424 billion, said people familiar with the situation. The settlement would cover not just the 22 investors represented by Gibbs & Bruns but all other bondholders in the 530 deals.

And here’s the expected hit to Bank of America’s Q2 bottom line, from the bank’s press release:

As a result of the settlement, and other mortgage-related matters, Bank of America expects to report a net loss in the range of $8.6 billion to $9.1 billion in the second quarter of 2011, or $0.88 to $0.93 per diluted share. Excluding the settlement, other mortgage-related charges, and proceeds from asset sales, the company expects to report net income in the range of $3.2 billion to $3.7 billion in the second quarter of 2011, or $0.28 to $0.33 per fully diluted share.

Except that’s not all. BofA also said it would also take hits of $5.5bn for other reps and warranties breaches and another $6.4bn for further “mortgage-related charges”.

The key driver of the expected loss is the representations and warranties provision of $14.0 billion, including $8.5 billion for the settlement agreement on legacy Countrywide mortgage repurchase and servicing claims, and an additional $5.5 billion increase in the company’s representations and warranties liability for non-GSE exposures and, to a lesser extent, GSE exposures.

The company also expects to record $6.4 billion in other mortgage-related charges in the second quarter of 2011, including a non-cash, non-tax deductible impairment charge of $2.6 billion to write off the balance of goodwill in the Consumer Real Estate Services business, as well as charges related to additional litigation costs, a write-down in the value of mortgage servicing rights, and additional assessment and waiver costs for compensatory fees associated with foreclosure delays. The impairment charge will have no impact on reported Tier 1 and tangible equity capital ratios.

Tough day at the office — or so one would think, except that BofA shares were up 3.5 per cent as of 8:48am New York time in Wednesday pre-market trading, possibly because investors had expected the settlement to be higher.

That wouldn’t have been an unreasonable assumption. As we noted in October, estimates for how much putbacks would ultimately cost the banks have ranged widely, so perhaps shares have been trading on some kind of uncertainty discount — just a guess, really, and this might not hold once the market opens.

Hard to say what happens next. Obviously the door remains wide open for further settlements between investors and other banks — in particular Wells Fargo and JP Morgan, the second- and third-largest mortgage servicers in the country respectively, after BofA.

More to come.

Related links:
Bondholders vs BofA, continued – FT Alphaville
A different kind of bank repurchase – FT Alphaville
Those blemished Countrywide loans – FT Alphaville

This entry was posted by Cardiff Garcia on Wednesday, June 29th, 2011 at 14:15 and is filed under Capital markets. Tagged with , , , .

Spotted – a pre-crisis pro-forma CMBS practice

Posted by Tracy Allowayon Jun 29 12:33.

“The steady erosion of loan-to-value requirements and Debt Service Coverage Ratio [DSCR] standards is not as concerning as the reintroduction of pro-forma loans. It is one thing to make a bet on what you know is there, but quite another to make bets on what may or may not be.”

That’s New Oak Capital’s head of commercial real estate, David Eyzenberg.

He’s talking about pro-forma loans in Commercial Mortgage-Backed Securities (CMBS) — and well he might. These loans, last seen in the underwiting excesses just before the crisis, have made something of a comeback. Both IFR and the Wall Street Journal have mentioned their return in recent weeks.

In market terms, pro-forma underwriting is the practice of basing future property cashflows on estimates rather than historical income streams. In non-jargon, it often means picking numbers out of thin air and basing your valuations on them. Even the rating agencies are pretty down on the method. Moody’s says that “almost always pro-forma underwriting is a negative for credit quality.”

Anyway, recent concerns seem to stem from this report from Barclays Capital:

Although CMBS 2.0 deals so far are nowhere close to 2007 vintage in terms of pro-forma underwriting, we start seeing isolated examples where some loans were underwritten using forward looking assumptions … Historically, clean underwriting was traditionally based on the most recent 12-month trailing financials. However, we see that a significant number of loans in CMBS 2.0 were underwritten 1) either significantly higher than 12-month trailing; or 2) historical numbers were not quoted in Annex A, making such comparison impossible. In many instances the lack of historical operating performance was in those cases where relatively new construction (assets built or substantially remodeled within the prior three years and even not fully stabilized) was securitized. In addition, for the recently acquired properties, historical financials might be not available or are just considered less reliable, as the sponsorship changed. Based on our analysis, the combination of these two factors explains most of the instances where the historical financials were missing … On average, about 18% of all CMBS 2.0 loans did not have historical NOIs [net operating income] …

Now, there are all sorts of pro-forma CMBS examples you might cite.

IFR mentions Cantor Fitzgerald’s inaugural CMBS deal, the $635m CFCRE 2011-C1, which is almost 30 per cent backed by loans with early termination clauses. One of the loans is also backed by the Hudson Valley Mall, which makes a rather unwelcome appearance on the website www.DeadMalls.com.

Or take JPMorgan’s JPMCC 2011-C3, where some tenants are in lease payment default or even bankruptcy (in this case, related to the Borders’ bankruptcy) or they’re not actually in place yet.

Luckily, Barclays’ Julia Tcherkassova has provided us with a handy list:

Related links:
S&P identifies troubling trends in recent US CMBS – Investment Edge
Pro forma underwriting not currently prevalent among new loans – Moody’s
Back to the future with CMBS
– FT Alphaville
CMBS hitting the fan – Mock the market, 2008

This entry was posted by Tracy Alloway on Wednesday, June 29th, 2011 at 12:33 and is filed under Capital markets. Tagged with , , , .

Restructuring the Greek pie

Posted by Tracy Allowayon Jun 29 11:23.

Who holds Greek debt right now, from UBS:

Who might hold Greek debt in a year, from UBS:

The rush for private sector involvement, explained.

This entry was posted by Tracy Alloway on Wednesday, June 29th, 2011 at 11:23 and is filed under Capital markets. Tagged with , , , .

Markets Live transcript 29 Jun 2011

Posted by supporton Jun 29 11:03.

Markets Live chat transcript for the chat ending at 11:32 on 29 Jun 2011. Participants in this chat were: Neil Hume, FT bryce.elder

NH

Hola markets rabble
NH

and welcome to anther edition of Markets Live
NH

with me and Bryce
BE

Hello!
NH

an hour or so to go
NH

before the results of the big Greek vote
NH

how exciting
NH

what’s the odd we sell off
BE

(@Milky: yellow for conceitedness.)
NH

if the austerity gets voted through
BE

Yeah – probably.
NH

must be in the price now
BE

This rally doesn’t seem to be terribly well founded, does it.
NH

nope
BE

Can will be kicked down the road again.
NH

is there anything left of the can now?
BE

And the end of the quarter’s coming up.
NH

it’s been given a real beating
BE

And things look a bit cheaper than they were.
BE

Really, though, what’s changed?
NH

good point on the half year end, however
NH

I have seen some funny moves this weeks
NH

looks to me
NH

as if people closing out profitable positions
NH

so all the trash that’s been slaughtered this year
NH

things like HMV
Hmv Group PLC (HMV:LSE): Last: 10.25, down 1.25 (-10.87%), High: 11.25, Low: 9.80, Volume: 3.66m
NH

have been rallying
NH

as people close out shorts
BE

Yeah – looks that way. And, in a thin market, that causes for choppiness.
BE

All over the place.
11:08AM
NH

Right market update then
NH

we are up
NH

65 points higher at 5,832
NH

miners leading the way
NH

and Icap
Icap PLC (IAP:LSE): Last: 455.30, up 18.8 (+4.31%), High: 455.60, Low: 439.70, Volume: 1.27m
NH

not sure I have a reason for the move
NH

heard anything Bryce?
BE

No – just asking now.
BE

There was a Singer upgrade a couple of days ago, though frankly, as reasons go that one’s rather weak.
BE

We have assessed the valuation of the business and conclude that at 9.7x cal 12E EPS the shares
are too cheap. Like Tullett, the voice business is currently valued at around 7x cal’12E EPS which
is well below the long term average of 9-10x. The Electronic business is being valued at just 13x in
common with US exchanges, which are trading near 10 year lows, and Post-Trade is trading on a
market rating. Our valuation methodology suggests a fair value of 535p and as such we upgrade
our rating to BUY.
NH

sorry on phone
BE

Will keep asking on Icap … because we don’t know.
BE

Ok – Neil’s off the phone now
BE

That sounded interesting.
NH

yeah a few bits of RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
Sportingbet PLC (SBT:LSE): Last: 54.00, up 4 (+8.00%), High: 54.50, Low: 50.00, Volume: 3.57m
NH

now this is only a story
NH

red raw dripping with blood
NH

but
Ladbrokes PLC (LAD:LSE): Last: 149.30, up 1.6 (+1.08%), High: 149.30, Low: 148.00, Volume: 291.31k
NH

are said to have made a 75p a share offer
NH

that has apparently been kicked back by SBT
NH

they want 90p
NH

which sounds like fanatasy
NH

anyway
NH

the bandits think the two will meet somewhere in the middle
NH

and because of the balls up with
NH

888:LSE
NH

Ladbrokes want this deal done sooner rather than later
BE

Interesting.
NH

all sounds a bit toppy to me
NH

but that’s the peril of RAW market info
BE

Indeed. But the prices mentioned match what UBS was talking about.
BE

We estimate that at 70p per share and
conservatively assuming £9m of synergies then the deal could be 20% earnings
enhancing in 2012E, to our, below consensus, Ladbrokes’ forecasts. At 80p per share the
acquisition would be 16% earnings enhancing we estimate and at 90p per share the
acquisition would be 13% earnings enhancing we estimate. This assumes Ladbrokes does
not close Sportingbet’s Turkish operation (20% of pro forma revenue) which is
debateable given Ladbrokes’ historic risk aversion to online gambling operations in ‘grey’
markets – i.e. it has never operated in the United States.
BE

In our view, as a standalone entity Sportingbet’s shares are worth 70p. Therefore the
rumoured 70p a share approach from Ladbrokes lacks any change of control premium.
We think Ladbrokes will need to offer closer to 80-90p a share if it is to gain a
recommendation from the Sportingbet board of directors. We reiterate our Buy
recommendation.
BE

So – plausible, if you’re an analyst.
NH

OK
NH

the other bit concerns Northumbrian
NH

again RAW
Northumbrian Water Group PLC (NWG:LSE): Last: 412.00, down 4.7 (-1.13%), High: 419.80, Low: 407.40, Volume: 2.23m
NH

so we think we know the advisers on all of this
NH

CKI are using RBC
NH

Ontario Teachers are using Lexicon
NH

and NWG are using Deutsche Bank
NH

now the story is
NH

CKI has just fired off a letter to Ontario
NH

which are of course the biggest shareholders in NWG
NH

the letter should have arrived
NH

and apparently it says
NH

we are prepared to pay 450p for the company
NH

as long as you fold some of your holding into the buyout vehicle
NH

if you don’t we’ll offer 475p for the lot
NH

Now
NH

is it the case the Ontario have two directors on the NWG board?
BE

Let me just check that.
NH

OK
BE

Claude Lamoureux, certainly.
NH

right
NH

that’s interesting
NH

if they did take this rumoured offer from CKI
NH

then he’d have to go
BE

Already a conflict of interest, you might argue.
NH

indeed
NH

anyway
NH

that’s the story
NH

but as we said yesterday this will be a tricky deal to pull off
NH

and the Geordies are already unhappy
BE

Yeah – read that this morning.
NH

An investment vehicle controlled by a leading Asian tycoon has been accused by an MP of keeping Northumbrian Water’s 3,000 staff “in the dark” and urged to divulge any plans to launch a bid for the company.
The comments came after Li Ka-shing’s Cheung Kong Infrastructure (CKI) disclosed that it was considering making a cash bid for Northumbrian, which has an enterprise value of £4.43bn ($7.08bn) and is one of the north-east’s few remaining listed companies.
BE

Borderline xenophobic.
NH

“Uncertainty is not welcome,” said Kevan Jones, Labour MP for North Durham, who said he planned to raise the issue in parliament. “For the regional economy, it would be important to know if an offer’s going to be made – and what their plans are.”
Roberta Blackman-Woods, the City of Durham Labour MP in whose constituency Northumbrian’s headquarters are based, said: “My concern is that if they’re bought over, we may have a management that’s not so rooted locally and who will not understand the importance of those private-sector jobs in Durham.”
NH

yep
NH

Borderline xenophobic
NH

it’s not as if most of the utility companies in this country
NH

aren’t owned by foreigners is it?
NH

Germans
NH

French
NH

Spanish
NH

they all have a bit
NH

presumably none of the people moaning above
NH

use a 3 mobile phone
NH

doesn’t the billionaire behind CKI own that?
BE

Yup. And what used to be EDF’s electricity network.
BE

Which formerly had management locally rooted in Paris.
NH

and Cambridge Water
NH

anyway
NH

I have a few more bits of RAW
The Game Group PLC (GMG:LSE): Last: 33.00, down 0.5 (-1.49%), High: 33.50, Low: 32.25, Volume: 391.53k
NH

someone appears to be building a stake
NH

through an equity swap with Credit Suisse
NH

they announced a 5% holding yesterday
NH

story in the market is that this could be Gamestop
NH

the US rival
NH

(Yes Milky – we will stay on air)
BE

Well, it’s dirt cheap
BE

If you believe it’s still got a business.
BE

Prospective yield of 20% or something?
BE

Though I’d be amazed if Gamestop was looking
BE

Given they’re facing identical problems in their home market.
NH

I must say I am sceptical
NH

but someone seems to have bought a lump of Game
NH

which is certainly brave
NH

moving on
NH

to the last bit of RAW
Charter International Plc (CHTR:LSE): Last: 639.50, up 24.5 (+3.98%), High: 643.50, Low: 615.50, Volume: 519.35k
NH

backstory here is
BE

(@Milky: the Reuters terminal tends to be the best place for Reuters flashes, unsurprisingly.)
NH

massive profit warning
NH

CEO falls on his sword
NH

because the company is worried about a potential predator
NH

said predator is Melrose
NH

the acquisition vehicle run by former Hanson people
NH

they are cashed up and looking
NH

and apparently have had to push back a few meetings in recent days
NH

(@Outlaw – we will come back on for that)
BE

Ah! That’s interesting.
BE

There’s certainly been some talk that Charter — a decent set of businesses by all accounts — could be useful to someone else.
NH

(@Vintage – it would never happen)
BE

Brewin summed it up quite nicely yesterday.
BE

Resignation of Chief Exec – A week after a profit warning, Charter
announced yesterday that Mike Foster had tendered his resignation and that
the Board had agreed that he should step down with immediate effect. A
replacement will be recruited from outside the Group. Chairman Lars Emilson,
former Chief Exec of Rexam, (’04 to ’07) will assume executive responsibilities
in the interim period. A Chief Executive of ESAB has also been appointed
(Mike Foster had effectively assumed that position in 2009), Brendan Colgan,
who was previously MD Strategy & Development ESAB Global.
BE

Price Target Increased – last week, we said that wholesale change or a bid
would be the only way for Charter to improve its rating. Wholesale change has
arrived earlier than we may have expected. Sentiment will be buoyed by this
move, as evidenced by the share price yesterday afternoon. We increase our
price target to 635p (P/E of 10x). We await news of the search for a new Chief
Executive with interest and would also point out that the Group may appear a
little vulnerable to predators at a depressed rating and without a Chief Exec.
Speculative buyers may be rewarded via either route, but we maintain a Hold
recommendation for now, awaiting trading stability.
BE

* Analyst has financial interest
BE

(The analyst being Jon Lienard.)
NH

interesting note
NH

and
NH

Melrose have just completed a big acquisition
NH

and are ready for the next
NH

and Charter looks like just the sort of thing
NH

they could buy
NH

repair
NH

and break up
NH

Melrose, the engineering turnround specialist, has sold its Dynacast business for $590m (£360m) in cash to a US consortium which should clear the way for a return of £350m to shareholders.The US group, led by Kenner & Company, a New York-based leveraged buy-out specialist, will assume $17m of pension liabilities for Dynacast, which is a global supplier of die-cast metal components with operations in the US, Europe and Asia.

The sale price is in line with guidance given by Melrose in March when it said it had narrowed down the auction for Dynacast to two potential buyers from an initial list of half a dozen.

BE

Melrose have been quite communicative in the past about what they may or may not be thinking of buying.
BE

I await guidance with interest.
NH

Mr Roper repeated remarks made by Christopher Miller, executive chairman, at the time of Melrose’s results announcement in March that the company remained keen to acquire another business in the £500m to £1bn range, regardless of whether or not Dynacast was sold on.“We’ve been slightly distracted by the trying to get this deal over the line,” said Mr Roper. “But we are opportunity-driven, and we are ready to do another deal. I am told we will get good backing from shareholders and a consortium of banks to fund the next deal – it’s a question of unearthing something.”

NH

£1bn
NH

is that enough to buy Charter?
BE

Without a premium.
BE

£1,069m
BE

So – possibly toppy.
NH

pushing it
NH

but such is their fan club
NH

I reckon they could raise the finance
11:33AM
NH

Right
NH

where now
NH

what about Betfair
NH

I’ve had a good exchange of views with the PR today
NH

following the results and buyback
Betfair Group PLC (BET:LSE): Last: 752.50, down 19 (-2.46%), High: 800.00, Low: 740.00, Volume: 582.77k
BE

The PR for Betfair’s a real hospital pass.
BE

How you spin a company that’s lost 50% of its value since flotation.
NH

good question
NH

but I reckon the buyback news is bearish
NH

an admission of defeat almost
NH

they haven’t been able to expand into new markets
NH

or overseas
NH

as they stated at the time of the IPO
NH

so they are handing cash back
NH

Betfair is nothing more than a utility
NH

monopoly position in domestic market
NH

throwing off loads of cash
NH

it returns to shareholders
NH

via buyback and dividends
BE

Indeed.
NH

and it’s now rated more like a utility
BE

Though I’d also note that they’ve been cutting marketing spend quite drastically.
BE

Which seems to be the main reason earnings today were in line-ish.
NH

this really wasn’t what people bought into at the time of the IPO
NH

when the shares were raffled off at £13 a strip
NH

was it?
NH

it was all growth growth growth
NH

no mention of buybacks
NH

in fact
NH

that’s a lie
NH

there were two
NH

both in the footnotes of the prospectus
BE

Yeah. Thirteen bucks for a European growth story. Now the company’s using the money raised to buy back the stock at close to £7
BE

That’s not really satisfactory, is it?
NH

and on top of that
NH

nine months after the float
NH

the CEO decides
NH

I’ve had enough and want to leave
NH

it’s really not very satisfactory is it?
BE

Regulation risk hugely misjudged, either by management or by its advisors.
BE

Investors sold a pup.
BE

So – as to the results, there’s not much optimism in there either.
BE

Trading’s behind forecasts. Core revenue down
BE

Somewhere between 5-10% is the best guess
NH

really
NH

the PR told me they were good
BE

Well, there’s a tough comparison on the World Cup of course.
BE

But Deutsche — who I’m taking because they’re neither positive or negative — were expecting 3% growth at the core.
BE

And, as I say, the earnings have made it to forecasts by cutting the advertising budget.
BE

Which isn’t really sustainable, surely.
BE

Here’s Deutsche.
BE

While the slowdown in core revenue growth remains concerning and will
undoubtedly lead to consensus revenue downgrades of c.5%, we think this
will be more than mitigated by cost cutting and so we expect FY12E adjusted
EBITDA of £87.9m (we target £86.1m) to remain largely unchanged.
BE

We went to a neutral stance from SELL on Monday as we think the valuation
is now more supportive with a 2012E annualized p/e of 15x., FCF yield of
10%, ev/ebitda of 6x and just over 20% of the current market cap is in cash,
but with the CEO about to leave and with regulatory/tax uncertainties in
some of the group’s key overseas markets still to be resolved we think the
shares lack material current share price catalysts.
NH

(@Foxhound – it’s not a bad model but it’s not the model that was marketed to investors. that’s our point)
NH

thanks for that
NH

shall we move on
NH

got some flashes from Greece coming in
11:43AM
NH

RTRS-GREEK OPPOSITION PARTY MP SAYS WILL BACK AUSTERITY PACKAGE IN VOTE LATER ON WEDNESDAY
BE

Euro ticking higher.
BE

Kick that can.
NH

FTSE moving higher
NH

up 78 ppoints at 5,845 at the moment
NH

$1.4418
NH

that’s the euro vs the dollar
BE

Oil — oil? — ticking higher. Just added a buck.
NH

wow
NH

one Greek opposition MP
NH

moves global markets
NH

feel the power
11:45AM
BE

Back to Icap I think.
BE

7.1% now!
NH

yes
NH

told it’s an algo gone mad
NH

keep reloading
NH

and buying
BE

Hopefully not one of Icap’s algos
BE

That’d be embarrassing.
NH

there’s no other reason out there
NH

bear closing etc?
NH

and apparently some recent note from Oriel
NH

which I don’t have
NH

because I’m not sure it exists
BE

And are we saying Oriel’s stuck 7% on Icap. Much as I like Oriel ….
NH

the algo it is
NH

blame the robot
NH

oh someone says it’s an HSBC note
NH

don’t think we have anything from them today
BE

Just checking the morning pack
BE

………. nothing. Zippy – isn’t that from ages ago?
BE

Like – a week or something?
11:50AM
BE

Ok -breaking news of sorts.
NH

Charter
NH

it’s true
NH

or so says Kleinmanwire via Twitter
NH

it’s out
NH

RAW IS BACK
BE

RNS datestamped 11:51am
NH

did we beat Kleinman?
NH

his tweet was at what?
NH

11.40am?
BE

Get the RNS then.
NH

hang on
NH

Following speculation concerning Melrose and a possible offer for Charter, the Board of Melrose confirms that on 28 June 2011 it made a preliminary approach to the Board of Charter with a view to entering into discussions about a possible offer for Charter at a value of 780 pence for each Charter share, a premium of 30% over the closing share price on the day prior to the approach. Any offer for Charter by Melrose, if made, would consist of a mix of cash and share consideration. However, Melrose would like to emphasise that there can be no certainty that an offer for Charter will be forthcoming. A further announcement will be made in due course if appropriate.
NH

MarkKleinman Mark Kleinman
Melrose has made an approach to buy the engineering group Charter, I have learned.
11 minutes ago Favorite Retweet Reply
NH

11 mins ago
NH

i reckon we win
BE

Yeah – why not. Scoop to you.
NH

anyway enough of that
NH

is 780p enough?
NH

in cash and Melrose stock
NH

will it be knocked back?
NH

(Milky – be serious for a moment)
NH

right
NH

let’s get a few notes out on this
NH

here’s Collins Stewart from Monday
NH

1. Our 820p price target implies over 40% upside from subdued levelsThough the negative reaction to Charter’s profit warning was understandable, particularly given the somewhat fearful macro environment, we think it was considerably overdone. On the assumption that ESAB can still achieve 10% margins, albeit later than expected, and that Howden’s recovery will be sustained, we can see at least 40% upside to the share price, making Charter the cheapest stock under our coverage.

NH

1. ESAB can still achieve 10% margins, albeit later than expectedBroader market demand should still pick up for the ESAB welding equipment business, albeit later than management may have hoped in March. When that happens, the reversal of negative mix effects aided by restructuring savings should make a return to the kind of 10%+ margins achieved before, and achieved by peers, somewhat inevitable.

NH

1. Howden recovery to be sustained by Chinese new-build, US retrofitThe company’s other division Howden is already seeing a sustained pickup in demand. Here we can see a number of market opportunities that should sustain that recovery, most notably Chinese new-build power generation equipment and US retrofit driven by new environmental regulations.

NH

1. Cheapest in the sector on conservative ests, CS Quest™ analysisCharter shares are trading at single digit 2011e P/E, and are the cheapest in the UK and Pan-Euro sector on most multiples. Default CS Quest™ valuation suggests 15% upside, but the assumption of 6.5% CFROC as achieved in the past (rather than the 2.5% market assumption), drives over 40% upside to our 820p target price.

1. ESAB take-out value nearly 100% of current EV, LBO stacks up too

Assuming ESAB is worth 1x sales, as per its peer Lincoln and justified by its long term 10% margin, creates enough value to account for over 95% of the entire group’s EV, leaving virtually nothing for Howden. Likewise, a leveraged buyout at a 30% premium to today’s price could easily deliver an acceptable IRR, even with relatively cautious exit multiple assumptions.

NH

I would say knock back
NH

immediate knock back
BE

Lowball, yeah.
BE

But the company’s in a weakened position to reject.
BE

Having no CEO
BE

Melrose has timed this well.
NH

they have
NH

smooth operators this bunch
NH

right
NH

that’s all thrown me
NH

where were we
12:01PM
NH

Right
NH

let’s revisit
NH

Cable & Wireless Worldwide
NH

I looked more closely at what Pluthero gets paid as chairman
NH

it’s more than the bloke at Voda
NH

and
NH

when he joined CW
NH

and put it together with Energis
NH

the share price was 100p
NH

when he became chairman it was 83p
NH

and now its
Cable and Wireless Worldwide PLC (CW.:LSE): Last: 46.19, up 1.19 (+2.64%), High: 46.24, Low: 45.00, Volume: 4.88m
BE

What a champion.
NH

indeed
NH

why is he the man to fix this business
NH

what am I missing?
NH

The appointment of the CWW divisional CEO as Executive
Chairman and then Chairman of the new de-merged
company (with no reduction in salary, in fact a total
remuneration above that of the Vodafone Chairman), and
now CEO again raises serious governance concerns in our
view, as does the simultaneous elevation of the Senior
Independent Director to Chairman.
NH

The CEO appointment was made without a search for
alternatives, which again raises governance concerns and we
think may be questioned by shareholders. This is particularly
the case because the combined CWW and CWC share price is
83p, versus around 100p when John Pluthero arrived from
Energis in 2006. In the intervening period management has
been paid a total of more than £35m, most of it in what is now
CWW, and well above the actual cash generation of the
division / company. Throughout this period the new CEO has
been heavily involved in the business, judging from company
statements and the level of remuneration.
NH

that’s from Nick Delfas at Morgan Stanley
BE

I note, also, that Jim Marsh still gets a year’s pay after resigning
NH

shocking
NH

hang on
NH

if you resign
NH

or I resign
NH

I don’t get a year’s money
NH

so we did he?
BE

Yeah – I don’t quite understand the golden goodbye
BE

Hand in your papers and get 12 months of sofa money.
BE

Absurd.
NH

(@PM – no. we aren’t)
NH

(Leaving to Tracy)
BE

Anyway, want to see someone advising you to sell C&W?
BE

As if anyone needed more encouragement?
NH

yes please
BE

Wacky Race (To The Bottom)
BE

This is Steve Malcolm at Evo
BE

Cable and Wireless Worldwide (CWW) was meant to be the more investible of the two demerged C&W companies, given its healthy balance sheet. Yet, in their helter-skelter race to the bottom, CWW proved to the worse investment. A third profit warning in 11 months, saw the CEO resign (with 12 months’ salary,) the dividend halved and the shares tumble another 14%. Its 5% yielding dividend is still uncovered and our forecast ‘11/12 free cash-flow is just 4% of current market capitalisation. CWW’s “depressed” share price may attract potential bidders, but extreme bravery is needed to make it look cheap. PE-style cost discipline was already imposed thanks to the LTIP and network replacement costing never works in this sector. With no management change, CWW faces a daunting slog to credibility. We see few bidders attracted to CWW’s 3.2x EBITDA multiple; poor visibility, falling revenues and lack of cash-flow will surely limit interest. We reduce our recommendation to sell and price target to 30p.
NH

30p!!!
BE

Rather aggressive, indeed.
12:09PM
NH

Right
NH

let’s cut to BoA
NH

an almighty hit
BE

Murph – feel free to jump over to the left and share your thoughts.
NH

BUS 06/29 11:00 Bank of America Announces Agreement on Legacy Countrywide Mortgage Repurchase and Servicing Claims
BN 06/29 11:02 *BANK OF AMERICA SEES 2Q IMPAIRMENT CHARGE $2.6 BILLION :BAC US
BN 06/29 11:02 *BANK OF AMERICA TO PAY $8.5B TO SETTLE COUNTRYWIDE CLAIMS
BN 06/29 11:01 *BANK OF AMERICA SEES 2Q IMPAIRMENT $2.6B :BAC US
BN 06/29 11:01 *BANK OF AMERICA SEES 2Q ADJ. EPS 28C-33C, EST. 28C :BAC US
BN 06/29 11:01 *BANK OF AMERICA SEES 2Q LOSS PER SHR 88C-93C :BAC US
BN 06/29 11:01 *BANK OF AMERICA SEES 2Q ADJ. EPS 28C-33C :BAC US
BN 06/29 11:00 *BANK OF AMERICA SEES 2Q LOSS PER SHR 88C-93C WITH IMPAIR
BN 06/29 11:00 *BANK OF AMERICA TO PROVIDE ADDED $5.5B FOR EXPOSURE :BAC US
NH

what an acquisition that was!
BE

(@Murph: just emailed you the link if you want to come in.)
NH

Bank of America is near a deal to pay $8.5bn to investors, including the Federal Reserve Bank of New York, to settle claims that mortgage-backed securities sold by its Countrywide Financial unit failed to meet underwriting requirements and other guidelines, people familiar with the situation said.
The agreement would be the largest so far by a bank to settle such claims and would exceed BofA’s earnings for all of 2009, the last year for which it showed a profit. BofA’s board, which met on Tuesday, must approve the deal, people familiar with the matter said.
NH

oh dear
NH

An agreement would be a significant step for BofA towards resolving legacy claims related to its 2008 purchase of Countrywide.
Roughly 22 large bond investors, including BlackRock, MetLife and Freddie Mac, alleged that loans sold by Countrywide failed to meet underwriting guidelines and that it failed to properly service the loans once they were packaged and sold to investors.
NH

A deal could pave the way for similar agreements between private investors and other banks, including Wells Fargo and JPMorgan Chase, which in addition to BofA, service the vast majority of US mortgages. The risk posed by such claims by private investors has been a growing concern among bank shareholders, in part, because they have been hard to quantify.
In January, BofA agreed to pay $2.6bn to Fannie Mae and Freddie Mac, the government-owned mortgage finance companies, to settle claims that Countrywide sold those companies loans that did not meet underwriting guidelines. When the housing market began to falter, the improperly originated loans went bad at a higher than normal rate.
NH

I guess the question is
NH

who’s next?
NH

will this set a precedent?
NH

(@JAWS – We have no edge, insight, view on Lookers. sorry)
12:13PM
NH

Right then
NH

a few more things to look at
NH

first a market update
NH

FTSE 100 up 87 points at 5,853
NH

one stock underperforming today
NH

is ARM
ARM Holdings PLC (ARM:LSE): Last: 594.50, up 5 (+0.85%), High: 596.50, Low: 576.58, Volume: 1.24m
NH

one of the biggest bulls has downgraded
BE

Yeah – Morgan Stanley
BE

Which was previously a big believer in the 20-years-of-royalties, creeping market share theory.
NH

have they cooled on that?
BE

To be fair, it’s really just a valuation call.
BE

And the risk of okay results not being good enough.
BE

Short term risks overshadow long term etc.
BE

You know the theme.
BE

Here’s the summary.
BE

We have had lots of good news so far on ARM this year
and are still believers in the long-term story. However,
we believe that it might be time to take a breather on the
stock given the strong absolute and relative share
price performance this year. Downgrade to EW.
BE

Forecasts unchanged but shares have
outperformed and upside now limited. With the
shares up 42% since the beginning of the year, ARM
has outperformed the SOX index by 15% since
mid-February (when the SOX peaked at 475). We still
believe that ARM will maintain its 95+% share in
smartphones, leading share in tablets, and take share in
the laptop market when Microsoft launches Windows8
on ARM. However, with the share price close to our
625p PT (5% upside), we believe an OW is not
warranted. We are not changing our above-consensus
forecasts for 2012/13 and expect Q2 results (26th July)
to confirm strong demand for ARM licenses.
BE

What could take ARM higher to the next level? 1)
Strong consumer demand for ARM based
Windows8 tablets and laptops and the availability of
these products with attractive form factors earlier than
the H2 2012 expectation. 2) If Apple were to look at
ARM for its Macbook product line (see our note dated
11th May – “The Race for Apple”). 3) Servers and cloud
computing – We believe there is room for ARM in a
server market dominated by Intel (95% market share)
and AMD (5% market share). However, we are still
waiting for ARM to announce a 64bit and multi-threading
core.
BE

What could bring ARM lower to the 500-550p level?
If Q2 results are just in-line and the macro environment
remains difficult, leading to more consumer weakness
related profit warnings, we could see PE compression
on ARM, even with no cuts on estimates. At 500p, the
shares would trade on 33x 2012 and 25x 2013 MSe PE.]
NH

thanks for that
NH

another downgrade
NH

out there today
NH

features on fav of the show
Premier Foods PLC (PFD:LSE): Last: 24.46, down 1.12 (-4.38%), High: 25.45, Low: 23.86, Volume: 4.38m
NH

the excellent Charlie Mills at Credit Suisse has downgraded
NH

PREMIER FOODS (PFD.L, 25.58p, NEUTRAL [V], TP 30.00p, OVERWEIGHT) Charlie Mills – CUT TO NEUTRAL VS OUTPERFORM; TP CUT TO 30P VS 38P – Though shares are still cheap, we believe, the investment case is dependent on stability in trading. Unfortunately we don’t yet see this. Furthermore we see any satisfactory refinancing of the debt in the current climate as unlikely. Accordingly we revert to Neutral. Co’s markets are weak; promotional levels in the trade remain intense; the lag on raw material inflation recovery will cost close to £25m; the loss of a major pie contract will likely delay the recovery in Chilled. Co guidance is to make progress on last yr’s “Continuing operations” EBITA of £267m.
NH

interesting note that
NH

the new management team have done a good job
NH

but the trading backdrop can’t be good
BE

And I think Mr Chicken’s refinancing of Northern Foods proved to be quite pricey.
BE

Which isn’t a great omen for Premier.
NH

did it
NH

any idea how much?
BE

Hang on – hunting email for the details.
NH

while you do that
NH

we have a live blog
NH

from Athens
NH

if you want to follow the (cough) action
NH

unlike the CNBC presented
NH

who has been given someone big plastic lab glasses
NH

to protect her eyes from the tear gas
NH

our man are out there in the crowds with their mobiles
NH

14.20pm (Athens time):The latest from parliament: Alexis Tsipras, the militant leader of Syriza, a small leftwing party, complained about the timing of the vote.

“It shouldn’t be happening while some Greek citizens are under attack,” he said in a reference to scuffles between police and demonstrators in Syntagma square outside parliament.

NH

There’s an air of anticipation among the protestors as the vote approaches, though some have been moving away to avoid teargas fumes blowing across the square.Riot police are lined up beside a crowd barrier placed across a main boulevard, backed up by parked dark blue police buses, so that deputies can drive away after the vote without having to confront the protestors.

NH

14.10pm (Athens time):FT Alphaville has got hold of some nice charts from UBS that show who is holding Greek debt now – and who might hold Greek debt in a year’s time.

12:21PM
NH

Time is ticking on
NH

is there anything else we need to look at?
NH

the research blackout has come off Glencore today
Glencore International PLC (GLEN:LSE): Last: 496.00, up 9.65 (+1.98%), High: 497.00, Low: 490.90, Volume: 5.35m
NH

loads and loads and loads of positive notes out there
BE

Yeah, who’d have thought it.
BE

The banks selling the stock a few months ago at 530p are keen to sell it at 495p.
BE

Should we chuck up some of the research and/or marketing then?
NH

yes
NH

but not all of it
NH

(Old Hand – he called the counter bid for Northern Foods very well. He’s a good analyst)
BE

Yeah – fair. Let’s start with Credit Suisse.
BE

We initiate coverage of Glencore with an Outperform rating and a £6.00
target price: An uncertain macro backdrop and uninspiring set of inaugural
Q111 results have led to weak trading conditions for Glencore shares in
recent weeks. However, we expect Glencore’s unique business model,
diversified earnings streams and fast-acting approach to growth to deliver
value over the medium term and we expect a stronger trading/demand
environment to lend support in H211. Following Glencore’s evolution from a
private to public structure, we think the next 6-12 months will be critical for
the company in allaying investor concerns around M&A, corporate
governance, proprietary trading risk and industrial asset volume growth.
BE

Valuation: We use a blend of earnings-based multiples, SOTP and
normalised earnings to reach an average target price of £6/sh. Our target
price implies a 2012E PE of 8.8x. Our peak cycle valuation is over £7/share.
The main area of uncertainty for investors is the valuation of the marketing
business given a lack of comparable peers and light financial disclosure. We
do not treat working capital as cash but believe the implicit low WACC (high
gearing, low tax) and light asset base warrants a premium rating over mining
peers. Our longer-term returns-based valuation implies a marketing
valuation of $26bn or £2.30/share.
NH

(@Silverfox – for gas masks, avon rubber are your best bet. they have an excellent selection. bio warfare models too)
BE

(@milky: it’s when all the banks do their annual minstrel show.)
BE

Here’s UBS.
BE

This report initiates coverage of Glencore with a Buy rating and 630p price target.
Glencore is the world’s largest integrated producer and marketer of commodities
by traded volume. The company seeks to maximise ROE in all activities and
employs an entrepreneurial approach to managing its assets, listed equity stakes
and marketing division. In our view, this sets Glencore apart from other London
listed miners.
BE

Glencore uses the unique proprietary information gathered through its logistics
business to generate arbitrage opportunities, as well as smaller returns from
directional trades. The logistics earnings plus counter-cyclical arbitrage enable
Glencore to generate a 26% divisional ROE at the bottom of the cycle. These
returns compare well to peers and, in our view, justify a 13.5x 2011E multiple for
the division.
BE

Glencore already has a broad base of mid-cost assets, each of which has strong
organic growth prospects. Now equipped with equity capital, we see potential for it
to undertake company-transforming acquisitions. Glencore is set to be the most
dynamic company in the European mining sector over the next three years. In our
view, it will be the stock to buy when the commodities cycle turns upwards.
BE

Glencore essentially consists of three components: industrial activities, marketing
activities and stake holdings. We value each component on a DCF and marketmultiples
basis, to arrive at a sum-of-the-parts equity valuation for Glencore of
US$68.3bn and a price target of 630p share.
BE

Had enough yet?
NH

meh
NH

no more
BE

Fair enough.
BE

Athens looks a real mess.
NH

it does
NH

gas
NH

lumps of marble being chucked
NH

I don’t have any confirmation on whether the vote has been delayed
BE

This is why we’ve got to keep all their nice things in Bloomsbury.
BE

Was there ever a fixed time? Before 1pm, I thought.
BE

(1pm BST)
NH

pass
NH

I heard three times today
NH

and by the looks of things
NH

I wouldn’t be surprised if it’s delayed
NH

most be some very nervous MP’s inside the parly building
BE

(@Nick1212: “The average Greek works 467 more hours each year than the average Briton”)
NH

(@CFA – that only happens in Kabul)
NH

Oh
NH

Charter at the Melrose offer price now
NH

780p
BE

(I’ve no idea if that Greek stat is true, hence the quote marks, but here’s a link: http://sturdyblog.wordpress.com/2011/06/18/democracy-vs-mythology-the-battle-in-syntagma-square/ )
NH

Right
NH

we must leave things here
NH

I have a presentation to prepare for
NH

thanks for logging on rabble
NH

quite a lively fun session
BE

Yeah – broke a £1bn takeover.
BE

That’s quite a good result, all told.
NH

tomorrow’s session will be exclusively focused on the Lloyds strategy day
NH

NOT
NH

thanks
NH

and good afternoon

This entry was posted by support on Wednesday, June 29th, 2011 at 11:03 and is filed under Uncategorized.

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