Markets Live transcript 16 Jun 2011

Posted by Neil Hume on Jun 16 11:04. 198 comments | Share

Markets Live chat transcript for the chat ending at 11:44 on 16 Jun 2011. Participants in this chat were: Neil Hume, FT bryce.elder   NHWhat’s the Greek for hello?    NHanyone know?  More…

Markets Live chat transcript for the chat ending at 11:44 on 16 Jun 2011. Participants in this chat were: Neil Hume, FT bryce.elder

NH

What’s the Greek for hello?
NH

anyone know?
NH

oh well
NH

let’s go with the normal greeting
NH

Hola
NH

and welcome to Markets Live
NH

where
NH

the Emoticon
NH

has been dusted down
NH

and pulled on
NH

it really isn’t looking very good out there
NH

the eurozone’s lehman moment
NH

that said
NH

some flashes just hitting the tape
NH

RTRS-EURO ZONE, BANKING SOURCES SAY GERMANY PUSHING TO DELAY SECOND RESUCE PACKAGE FOR GREECE UNTIL SEPTEMBER
NH

kicking things even further down the road
BE

Even while the can falls apart.
BE

It’s barely a ring-pull now.
BE

And yahsu, everyone.
BE

So what’s the damage out there?
NH

well
NH

we are looking at 80 points off the FTSE 100 at the moment
NH

currently down at 5,663
NH

elsewhere
NH

the euro that’s a $1.4088 now
NH

which could be the low of the day
NH

sterling is $1.6102
NH

as for the Greek 2-year yield
NH

that’s up at 29.35%
BE

Blimey!
NH

Euro at record low against the Swiss franc
NH

generalised risk off
NH

just going back to the above flash from Reuters
NH

we were running a story today
NH

that the IMF will give Greece the next chunk of cash
NH

even if
NH

the funding gap isn’t sorted out
NH

But the IMF’s executive board now seems prepared to release the money on the strength of a promise of future European funding rather than concrete commitments, according to officials in Berlin, Brussels and Washington.“The IMF should be able to live with this,” said one European official. The softening of the IMF stance gives the eurozone more time to work out how to involve bondholders, averting a political crisis ahead of a summit of European leaders next week and easing fears of a disorderly default by Greece. In return, the IMF and the eurozone want the Greek government to promise it will secure cross-party support for new budget-consolidation measures.

NH

looks very much to me
NH

as if something is going to be cobbled together
NH

this sucker ani’t going down
NH

unless that is
NH

the Greek’s can’t vote the austerity measures through parliament
NH

and then
NH

well
NH

we go to four notches onthe chin strap
BE

Quick whip around the CDS prices?
NH

hang on
NH

on the phone
NH

something going on in Laird
Laird PLC (LRD:LSE): Last: 136.00, down 1.3 (-0.95%), High: 137.40, Low: 135.00, Volume: 344.07k
NH

told it’s not a fat finger
NH

stock now up 10%
NH

this thing makes mobile phone bits and pieces right?
BE

Yeah – phone antenna
BE

Which has been the rubbish bit of the business, due to Nokia exposure.
NH

186p a share bid approach
NH

sorry 185p
NH

nice of Laird to inform the market
NH

clearly not price sensitive
NH

at a 35% premium to the price
BE

Cooper Industries plc (NYSE: CBE) (“Cooper”) today announces that on 1 June it made a proposal to the Board of Laird plc (“Laird”) to acquire Laird by way of a cash offer at 185 pence per Laird share, a 35% premium to yesterday’s closing price. This proposal is subject only to limited pre-conditions. Cooper believes there is a strong rationale for this transaction and that an all cash offer at this level would provide Laird shareholders with an attractive premium combined with the certainty of cash value now.
NH

look at the headline
BE

Headlined “Rule 2.4 Announcement”
NH

no wonder people missed it
BE

And no Laird code on it.
NH

nice
NH

who advised on this?
BE

Hm. Is an offer at a 35% premium from an industry peer not worth mentioning?
NH

Barclays Capital (Financial Adviser to Cooper and Holdings)
Mark Warham, Managing Director, (+44 20 7623 2323)Mark Todd, Managing Director, (+44 20 7623 2323)

Bertie Whitehead, Director Corporate Broking (+44 20 313 49802)

Financial Dynamics (Public relations)
United Kingdom

Richard Mountain, Senior Managing Director (+44 20 7269 7186)

Andrew Lorenz, Chairman Financial Communications (+44 20 7269 7113)

NH

that’s on the Cooper sisde
NH

and as VP says
NH

awful awful RNS
NH

not a good start
NH

actually weren’t JP Morgan pushing the stock yesterday
BE

They were. Will dig out the note.
BE

JP Morgan being Laird’s house broker.
NH

ah that’s interesting
NH

buy note on the day
NH

it gets a bid approach
NH

coincidence
NH

obviously
NH

what does it say
NH

sorry
NH

the approach was made on June 1
NH

so they have been sitting on this bid for two weeks
BE

We view Laird’s current share price as an attractive entry point and believe
that the core business and recent accretive acquisitions are undervalued. We
expect exposure to Nokia to continue to decline leading investors to focus on
the core business and recent acquisitions rather than the Handset Antennae
business. We introduce a sum of the parts valuation methodology and derive a
June 2012 price target of 170p, 25% upside.
BE

Note the price target.
BE

15p discount to the bid.
NH

management
NH

have some explaining to do
NH

and why they have rejected this
NH

just looking at Cooper
NH

this isn’t some two bit outfit
NH

Market cap $10bn!
BE

Would be struggling for finance, obviously.
NH

seems to be a massive maker of electrical prodcuts
BE

Ok then. You have some explaining to do, Mr Nigel Keen (non-exec chairman)
BE

And Mr Peter Hill (CEO)
NH

hmm
NH

two bids in a week
NH

perhaps the log jam has broken
NH

note however
NH

both from US bidders
Laird PLC (LRD:LSE): Last: 136.20, down 1.1 (-0.80%), High: 137.40, Low: 135.00, Volume: 414.68k
NH

when will that update?
BE

And Avis doesn’t really count. That’s just a mercy killing.
BE

This is actual, proper M&A.
BE

Albeit undisclosed.
NH

who else does Laird compete with?
NH

is there anyone else
NH

who might take a shot
BE

Oh – it’s years since I’ve looked at Laird, and they’re a different shape from when I did.
BE

Very diverse, the electronic widget sector. Motorola Solutions, obviously.
BE

Cisco, Honeywell, Spectrum Control, Murata.
BE

The list’s long.
NH

interesting
NH

we could have some fun with this
NH

right
NH

let’s rewind
11:25AM
NH

I was about to give you some
BE

CDS please.
NH

right then
NH

Sovereigns – Greece 1900bp (+174), Spain 312bp (+25), Portugal 838bp (+49), Italy 189bp (+11), Ireland 813bp (+42)
NH

Reports on the wires that second rescue package for Greece could be delayed until September.
NH

now on the idea of the package being delayed
NH

I had some good comment from
NH

JP Morgan
NH

David Mackie
NH

According to the Financial Times this morning, the details of the new Greek package may not be available until mid-July. Apparently, a decision by the IMF that it is willing to release the next tranche of money on the basis of a commitment from the Euro area that any funding gap that emerges will be filled by Euro area support, has given policymakers in the region more time to reach an agreement on what sort of involvement from bondholders will be incorporated into the new package.
NH

There are three arguments in favour of a meaningful maturity extension – of bonds that are due to mature in the coming few years – as part of the forthcoming package. Because it would limit the build-up of official liabilities, it would satisfy the political demands in Germany for private sector involvement which would limit the exposure of taxpayers. It would also incentivise the Greeks to keep moving forward with the adjustment (by making the threat of ultimate default more credible). And it could give the Greeks longer to make the necessary adjustment (by spreading the available official support over a longer horizon). The key argument against a meaningful maturity extension is the risk of contagion.
NH

There is something of an inconsistency in what is being discussed: the desire that bondholder involvement is voluntary, substantial and includes the private sector. We find it hard to see how the Vienna initiative is a suitable analogy. That was about trying to encourage banks to maintain their investments in their eastern European subsidiaries. In the current sovereign crisis that would be equivalent to encouraging investors to voluntarily hold on to their Greek debt that is due to mature many years down the road (that is, not sell it in the market). But that is not what is being discussed, nor is it what is needed to slowdown the build up of official liabilities in the coming few years. The idea of a rollover is to get bondholders to reinvest the proceeds of their maturing bonds into new instruments with a long maturity, but with a coupon well below current market yields. It is hard to see why anyone in the private sector would do that voluntarily. It is certainly possible that public sector entities in the Euro area that own Greek government debt would do such a rollover, but that is hardly private sector participation. Nor would it be particularly substantial. The only thing that would appear to be voluntary, substantial and involve the private sector would be a rollover of maturing debt into T. bills.
NH

Our view has been that we will get something of a fudge in the upcoming package, which promises bondholder involvement that is voluntary, substantial and includes the private sector, but which will actually under deliver in terms of genuine private sector participation. This creates the possibility that the amount of explicit official support that is needed over the coming years will end up being higher than what will be put on paper in the coming weeks. If alongside this Greece continues to under perform relative to the new programme objectives, then the region will be back at this point some time next year.The Financial Times suggested that the full details of the new package may not be available until mid July. Even so, there is still some possibility that the Merkel/Sarkozy meeting tomorrow manages to sort out the key differences.

NH

a little bit behind now
NH

because events are moving so fast
NH

as this shows
NH

16Jun11 RTRS-EU COMMISSION: REHN CONFIDENT OF DISBURSEMENT OF NEXT TRANCHE FOR GREECE IN EARLY JULY
11:26 16Jun11 RTRS-EU COMMISSION: REHN CONFIDENT OF TAKING DECISIONS ON PROGRAMME FOR GREECE ON JULY 11
11:26 16Jun11 RTRS-EU COMMISSION: REHN CONFIDENT GREECE WILL BE FUNDED TILL SEPTEMBER
11:27 16Jun11 RTRS-EU COMMISSION: REHN REGRETS GREECE FAILED TO REACH NATIONAL UNITY
BE

(@Swedes: there’s usually an XML code attached to RNS releases that means they’re streamed automatically to the right place. It’s rather unprofessional that this one wasn’t, though no more than that.)
NH

(Anthrax – Paul Mason very good on Newsnight yesterday. On the front line of global capitalism)
11:29AM
NH

Right
NH

let’s scoot back to Laird and see where they are trading for a moment
BE

31% higher.
BE

180p.
BE

So – small discount to the bid.
BE

Which clearly proves it wasn’t price sensitive information.
NH

the rules really do have to change
NH

we can’t have companies
NH

not disclosing proper bid approaches
NH

from massive rivals
NH

OK
NH

a flaky offer
NH

that lack finance
NH

fair enough
NH

but this?
BE

Laird shareholders are ….
BE

Aviva, with 8.5%
NH

the conditions are hardly onerous
NH

looks pretty standard to me
NH

The Board of Laird has rejected this proposal. Cooper is disappointed that despite its efforts to enter into a constructive dialogue with Laird on several occasions, the Laird Board has stated that it is currently unwilling to engage with Cooper. Cooper’s strong preference remains to work towards a recommended transaction through a constructive dialogue with the Laird Board.
BE

….. Artemis with a bit less than 8%
NH

which makes one wonder who owns this business exactly?
BE

Mondrian with 6.5%.
BE

Fidelity with 5%
BE

Etc. etc. etc.
BE

A diverse range of institutions.
BE

Management has no skin in the game.
NH

I guess
NH

management will ask the Panel for PUSU
NH

under the new rules
NH

and given Copper around 4 weeks to come up with something
NH

which might be a struggle
NH

but that’s the point of the new rules
NH

to stop evil foreign companies
NH

acquiring our boys
BE

Ok – I really only have one question.
BE

Were shareholders consulted before rejecting the approach?
BE

And, if not, what damn right did management have to reject it?
NH

I think we need to move
BE

Yeah – sorry, repeating myself now.
NH

worth noting the shares have only traded at 180p twice in the past couple of years
NH

Who are the PR to the company?
BE

Maitland
BE

Brian Hudspith
BE

Sam Turvey
NH

expect a call
NH

to be re-educated later on today
NH

EmoticonEmoticon
BE

Of course. I’m sure it’s all just a gap in my understanding, and I should — in the words of William Burroughs — take a broad general view of these things.
11:37AM
NH

There are other things going on this morning
NH

the curse of the UK IPO
NH

for example
Glencore International PLC (GLEN:LSE): Last: 464.50, down 8.5 (-1.80%), High: 465.40, Low: 452.30, Volume: 14.04m
BE

Deary me.
BE

Though Samsonite’s been rubbish in Hong Kong as well.
BE

Down 10% on debut.
NH

true
BE

So it’s not just a London phenomenon.
BE

Unless you have a website, don’t float.
NH

yep that’s the message
NH

you need a dot.com angle
NH

otherwise
NH

forget it
BE

So anyway, what of Glencore?
NH

now on Glencore
NH

seen this note from MF Global?
NH

it’s come out of their Hong Kong office
NH

reckons the shares are worth 390p each
NH

and Glencore is nothing more than a Japanese trading house
NH

which sounds a bit harsh
BE

Seen that argument a couple of times.
NH

(Swedes – nowhere near as much as Glencore. And that’s the sort of response I’d expect from an ECM banker Emoticon
NH

right
NH

here’s the summary of the note
NH

which I have to say
NH

isn’t the easiest read
NH

Ostensibly the company is being valued in the market at about 12x earnings
and a PBR of about 1.8x. Equating the company to a securities trader and
broker the PER looks about 20% too high and the PBR about 80% above
GS/Macquarie levels. Considering Glencore as a commodities trading
company the PBR 3x looks too high and the non-affiliate PE earnings about
2x-3x too high.
NH

A large problem is that the bulk of earnings come from Xstrata, and these can
be had for about 8x. Stripping these out, investors are paying 21x for the rest
of the marketing earnings. Valuing these earnings at 10x (putting aside matters
of liquidity, D/E ratios, quality of book, accounting, etc) gives $22bn+$19bn as
fair value, about $41bn, giving us 360pence per share, about 10% above what
we think is the conversion price on the CBs
NH

We also note that if current commodities sustain for the year the company’s
working capital position is such that paying down debt will not be an option.
NH

We think that a range of 360p-400p is reasonable. The market price for the
stock is yet not clear and so we choose 390p as a target price which is 9x our
EPS forecast for FY12/11, a little more expensive than the miners but in line
with the major traded securities brokers.
$3.1bn of stock28 is locked up for six months and staff likewise locked up for
longer periods. The real trading float is perhaps 10% of the market cap at the
moment.
NH

and talking of Xstrata
NH

someone else has put through a downgrade today
NH

on the back of the Glencore numbers
Xstrata PLC (XTA:LSE): Last: 1,242, down 17.5 (-1.39%), High: 1,247, Low: 1,207, Volume: 9.19m
BE

Go on.
NH

We are lowering our earnings forecasts for Xstrata on lower assumed coal production
(weather impacted), lower assumed coal price realizations and higher assumed mining
cost inflation. 2011E EPS -20% to US$2.49. 2012E EPS -12% to US$3.15. We are
also lowering our price objective to GBp1750, keeping the same 1.2x NPV multiple on a
downgraded DCF valuation. Through the cycle, diversified miners have historically
traded at 0.7x-1.4x NPV. We maintain our Buy rating.
NH

Glencore’s earnings suggest a weak Q1 for XTA
Xstrata’s largest shareholder (Glencore, 34%) reported earnings earlier this week
with earnings from associates included at US$554 million. Given that most of this
is likely from Xstrata, it implies 1Q Xstrata net income of about US$1.6 bn against
a Bloomberg full-year consensus of US$8.1 bn i.e. ~20% of Street FY figures
(18% of our previous FY estimates). Simply annualizing this would imply FY net
income of US$6.4 bn. 1Q coal shipments were materially impacted by the floods
so it is likely that 2011 will be a “year of two halves” i.e. weak H1, strong H2. Our
revised US$7.3 bn net income “splits the difference” between current consensus
and annualizing 1Q.
NH

that 20% figure again
NH

anyway
NH

have a feeling that
NH

Glencore won’t be reporting Xstrata’s numbers in this fashion again
NH

just a hunch
BE

Well, being a public company changes the amount of information associates need to provide, doesn’t it?
BE

There’s every chance that, by Q3, there’s just going to be a hole in Glencore’s numbers where Xstrata used to be.
BE

Which’ll be fun.
NH

it will be
NH

income from associates – NOT AVAILABLE
NH

quite amusing really
NH

there’s so many things Glencore don’t get about being a public company
NH

the slapdown from the Panel yesterday was embarassing
NH

did no one tell the CEO
NH

that he can’t go around dismissing bid rumours
NH

without being forced to make a statement
NH

and rule himself out of bidding for six months
BE

Incidentally, someone was reminding me this morning of the Blackrock IPO rant they sent around at the end of last month.
NH

oh yes
NH

that’s good
BE

Which seems rather wise, in retrospect.
NH

it shows the UK IPO market is totally broken
BE

We are concerned about the structure of incentive fees which maximise your returns for the price achieved on the first day of trading rather than at some, more distant date, e.g., six months after float. Such fees do not represent an alignment of interests between us and seem to drive increasingly aggressive behaviour from syndicates.
BE

I wonder idly how much of the stabilisation fund for Glencore was front loaded?
BE

To perhaps prop the price up and catch a few incentive fees.
BE

And, since then, we get a true market developing.
BE

As I say, I’m wondering idly.
NH

Can we just stay with mining for a moment
BE

Of course.
NH

Vallar
NH

Nat Rothschild Shell 1
BE

Which makes it sound a bit like Thunderbirds.
BE

Go on.
NH

(Tassell – Friday)
NH

yes it does
NH

hadn’t thought of that
NH

anyway
NH

I have been trying to figure out this latest deal
NH

they are buying a subsidiary of Bumi Resources
NH

for $2bn in convertibles
NH

Now
NH

the subsidiary was only floated in December
NH

so why would you sell now?
NH

the answer it appears
NH

is that the owners of Bumi
NH

the Barkie brothers
NH

owe the Chinese
NH

CIC to be precise
NH

$2bn
NH

and they are paying a 19% coupon on it
NH

so this deal has been stitched togeter
NH

to pay down that debt
NH

and in a further twist
NH

the Bakrie’s will just swap the bonds with CIC
NH

and the CIC will become a Vallar shareholder
NH

eventually
NH

convoluted
NH

but a pretty neat structure
NH

if you can follow it
BE

I’m trying, but struggling.
NH

the point is
NH

the Bakrie’s who will be the biggest shareholder in Vallar
NH

are very leveraged
NH

and this vehicle seems to be helping them out of all sorts of situations
11:53AM
NH

Back to Laird again
NH

they are trading through the terms
Laird PLC (LRD:LSE): Last: 186.00, up 48.7 (+35.47%), High: 186.00, Low: 135.00, Volume: 1.81m
NH

and we have a bit of comment
NH

via Olivetree Securities
BE

191.5p is the live price.
NH

ta
NH

we have some multiples on this approach
NH

and a wee bit of analysis on the Cooper balance sheet
NH

here we go
NH

Cooper Industries have just announced that they had an offer of 185p rejected by Laird (LRD LN). This would imply a market cap of £500mm for Laird, or an EV of £575mm. 185p values the business at 9.25x 2012 PE or 6.02x EV/EBITDA.
NH

Laird manufactures avrious components for products such as wireless routers and mobile phones, most technologies centre around the smoothing of power suplpies, and shielding of power components in these products. Its easy to start drawing comparisons with Chloride last year, but should be noted that Laird is a very different busienss. Chloride was all about date-cetre power supply really, Laird is much more component level. Laird in nowhere near as good a business as Chloride was, and isnt growing as fast. Its best comp is probably Balde (BAF GY), an EUR500mm mobile phone component manufacturer. Balde trades on distorted multiples though thanks to the ongoing restructuring it is going through (it has regularly been loss making in recent years).
NH

The mobile phone side of Laird’s business will see structural challenges ahead – but as more aggressive power supplies run through base-stations, this sector is expected to grow heavily. Hence the attraction to Cooper, a $10bn market cap company. Cooper runs net cash of $122mm into 2012 (generating some $350mm FCF per annum), a $930mm transaction like Laird would only take them to 0.75x levered. Cooper itself trades on 13x earnings and 9x EBITDA.
NH

By way of reference though, Chloride was done at 28x 2011 earnings and 17x EV/EBITDA, materially higher than the current Laird offer multiples, but as we say – very differing backdrops. HArd to really find appropriate transaction comps for Laird – and given the size of the transaction, Coopr could realistically afford to pay materially higher whould it think it is justified. Given their move in making this approach public though it would seem intuitive there is a small improvement possible – but not to whatever level Laird management feel is needed for a private recommendation.
NH

in other words
NH

Copper will bump
NH

but will it be enough for the board of Laird???
NH

if the board think they are another Chloride
NH

then clearly they are bonkers
NH

(12.15 start. England put SL in to bat)
BE

Indeed. Chloride didn’t have a three-legged limping donkey like Nokia as a key customer.
NH

(wicket looks very green)
11:56AM
NH

Market update
NH

FTSE 100 rallied a little bit
NH

now 68 points at 5,674
NH

and I forgot to put this up earlier
NH

the results of the Spanish bond auction
NH

which they got away
NH

at a price
NH

via Reuters
NH

Spain had to pay investors a handsome price in the latest test of demand for its debt on Thursday as market tensions over an expected new rescue package for Greece approached fever pitch.
NH

Spain had to pay investors a handsome price in the latest test of demand for its debt on Thursday as market tensions over an expected new rescue package for Greece approached fever pitch.
NH

The average yield on the 2019 bond was 5.352 percent, and it was 6.027 percent on the 2026 bond, roughly in line with the secondary market.
BE

(@fjp73: can’t really see much readthrough for CSR, to be honest.)
11:58AM
BE

Ok – nearly midday
BE

Is there any RAW surviving in this falling market?
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.
NH

not really
NH

there’s Tui Travel
Tui Travel PLC (TT.:LSE): Last: 214.10, down 1 (-0.46%), High: 221.00, Low: 214.00, Volume: 4.25m
NH

which we should clear up once and fall all
BE

Ain’t going to happen.
NH

it will happen one day
NH

but NOT YET
BE

No time soon, anyway.
BE

Tui needs to get shot of Hapag-Lloyd before we move onto the next stage.
NH

indeed and on that note
NH

TUI TRAVEL (TT/ LN) / TUI (TUI1 GY) -TUI may sell its stake in
Hapag-Lloyd to Oman Investment Fund, although a deal won’t be signed in the near future, FTD reports. The Omani sovereign fund sent a letter of intent for the acquisition to TUI and is still examining Hapag’s books. Talks with HNA Group are also continuing.
NH

and there’s a good reason why it won’t be sold
NH

price
NH

have you seen Maersk?
NH

down 20% this year
NH

not really the sort of environment you want to be selling Happag into
NH

and in any case Tui is not as cheap as it looks
BE

And you’re certainly not going to IPO it.
BE

That market’s closed, surely.
NH

yep
NH

TT massively expensive compared to Thomas Cook
BE

And plenty of room for more profit warnings.
NH

indeed
NH

because as we know
NH

and we reminded again this morning
NH

consumer spending isn’t great
NH

in fact the best we can hope is that it will be flat year on year
NH

before we take a look at that
NH

and the part the Olympic ticket farce played
NH

in today’s number
NH

some comment
NH

on Tui
NH

from Olivetree
NH

on why it won’t happen yet
NH

Once again today we have newsflow convering the Tui / Tui Travel situation. Whilst an eventual buyout of Tui Travel minorities is somewhat inevitable, thanks to deteriorating fundamentals of the shipping market, we have been bearish on this story for some time. It is worth once again looking at the backdrop here – and worth understanding just how much takeout premium is already in the TT/ share price.Tui has been talking for nearly a year now about the desire to sell / IPO their Hapag Lloyd stake. The original agreement with the Albert Ballin consortium allows them to sell out in Jan 2012, so this isn’t too far away now – but the stories in the press have shifted from that of an IPO for the remaining stake, to a sale to the Omani’s, see the Financial Times Deutschland today for instance. Whereas a sale is inevitable – the backdrop for shippers is as bad as it has been, any sale will likely still drag and price potentially disappoint. MAERSKB DC shares are down 19% year-to-date, showing why we have been consistently concerned about Hapag Lloyd’s fundamentals.

NH

Conversely, thanks to continued M&A speculation, Tui Travel shares have been a material outperformer this year, far too aggressively so. On a 12 month view, TT/ shares are down 7% vs Thomas Cook shares down 35%. Tour operator is a segment we continue to want to avoid as it faces cyclical and structural issues. Having said this, whilst we understand why TUI Travel has built in some premium for takeover speculation, the shares now trade at a 55% premium to Thomas Cook, a spread which is too high for us. This is as high as this spread has ever been. Given Tui already owns a large blocking stake in TT/, we would see an appropriate takeout premium as 15-20% maximum, meaning the current spread is crazily wide. Tui Travel trades on 9.4x 2011e PER vs Thomas Cook on 6.1x. Either Tui Travel PE is too high or Thomas Cook is too low.We have continued to argue that the container shipping industry will face difficulties this year as rates decrease, capacity increase, utilisation levels stay low and profitability goes to losses. We’ve been and are still sellers of MAERSKB DC (same applies to TUI AG). With this backdrop we continue to struggle to see a smooth disposal of TUI’s Hapag Lloyd stake, and whereas it remains likely that Tui move on the TT/ minorities in the medium term, the premium implied in TT/’s shares at the moment is too aggressive by some way.

NH

there you go
NH

case closed?
BE

I’d say so, yes.
NH

good
12:05PM
NH

so more RAW just in
NH

for those of you
NH

who like
NH

Lloyds of London insurers
NH

Omega
NH

’m hearing rumours that Omega is holding a board meeting in Bermuda on Wednesday to decide which of the approaches to run with. It is thought that the Barbican deal is in pole position. Whilst the potential for a deal with Novae makes sense the extent to which Omega’s underwriting book has deteriorated is a concern, although arguably there are few with more experience of turning a problem child than Matthew and Oliver!It is possible that we’ll hear something by the end of next week or early the following.

NH

the Barbican apparoach
NH

is a reverse takeover
NH

in case you didn’t know
NH

talking of which
NH

did you see
NH

we got a reverse Chinese takeover in the UK today
BE

Really?
NH

yep
NH

curious timing
NH

let me grab the release
NH

China Wonder
NH

whatever the hell that is
NH

acquiring Win Yu International Investments Company Limited
NH

China Wonder Limited (“China Wonder” or the “Company”) is pleased to announce that it has conditionally agreed, subject, inter alia, to Shareholder approval, to acquire the entire issued share capital of Win Yu International Investments Company Limited (“Win Yu”)(the “Acquisition”). The aggregate consideration of RMB130,000,000 (approximately £12.3 million) for the Acquisition is to be satisfied by a cash payment of RMB 53,000,000 (approximately £5 million) and the issue of 38,325,737 new ordinary shares of 2.5 pence each in the Company (“Ordinary Shares”) at a price of 19 pence per share (the “Consideration Shares”).
NH

By reason of the size and relative value of Win Yu in relation to China Wonder, the Acquisition constitutes a reverse takeover under the AIM Rules for Companies and, therefore, requires the approval of existing shareholders at a general meeting. To complete the Acquisition and implement the Placing it will also be necessary to give the directors of the Company (the “Directors”) the required powers and authorities to allot the Consideration Shares and the Placing Shares. If the Acquisition is approved by shareholders, the admission of the existing Ordinary Shares to trading on AIM will be cancelled and the Company will apply for admission of its enlarged share capital to trading on AIM (“Admission”). The new Ordinary Shares to be issued in connection with the Acquisition and Placing will rank pari passu in all respects with the existing Ordinary Shares.
BE

Hang on hang on hang on.
BE

I don’t know any of these companies.
BE

What’s a Win Yu?
NH

you’re not supposed to
NH

Win Yu
NH

they do the following
NH

JSQH’s business comprises the design, manufacture and sale of lathe and milling machine tools. A lathe is a machine for shaping wood, metal, or other material by means of a rotating drive which turns the piece being worked on against changeable cutting tools. A milling machine is a machine tool used to machine solid materials, usually metal, which are secured to a carriage and shaped by rotating milling cutters. Milling machines can perform a large number of operations, from simple actions (e.g., slot and keyway cutting, planing and drilling) to complex processes (e.g., contouring and diesinking).
NH

not a forest in sight Emoticon
BE

Well, that’s a relief of sorts.
BE

And China Wonder ….
China Wonder Ltd (CWO:LSE): Last: 19.38, no change, Volume: 0.00
BE

is dedicated to both research and development and manufacturing non-standard machinery and equipments. It has a great professional team to provide engineering solutions.Its first wholly owned subsidiary is Jinzhou Wonder Packing Machinery Co., Ltd.
BE

Jinzhou Wonder Packing Machinery Co., Ltd
BE

Makes pop packs for drugs, it appears.
NH

(Woolwich – yep Brewin Dolphin have bagged 8.8m shares in Pinewood)
NH

so there are some synergies in this deal
BE

Guess so. Odd state of affairs when Beijing lathe makers are reversing into Jersey-based peers.
12:12PM
NH

Retail sales then
12:12PM
NH

we expected a weak number
NH

because every splashed out in April
NH

and we got one
NH

unfortunately
NH

it was much weaker than expected
NH

but fear not
NH

things have not got worse on the high street
NH

it’s just that the Olympic Tickets
NH

weren’t considered retail sales
NH

but
NH

because everyone bid for £500 worth (which they didn’t get)
NH

they refused to buy anything else in May
BE

Eh?
BE

Seriously?
NH

yes
BE

That seems improbable.
NH

After surging by 1.2% m-o-m in April because of the additional bank holidays for the Royal Wedding and also the unseasonably warm weather, retail sales (ex-auto fuel) plummeted by 1.6% m-o-m in May. We think nearly 1pp of this fall was merely a statistical effect as the level of sales returned toward their underlying level. The rest of May’s acute weakness might be explained by the effect of ticket sales for the Olympics, which are not classed as retail sales.
NH

this is from Nomura
NH

With household income diverted toward this, less was available for conventional retail sales. With retail sales worth about £25.6bn in May and Olympic ticket sales worth nearly £0.5bn, this is clearly not an insignificant effect. Abstracting from the Royal Wedding distortion and treating the Olympics tickets as retail sales, as some commentators mistakenly believed they were, we think volume growth would have been about 1.5% m-o-m. But clearly this is not a reflection of underlying sales in the sector, which are not much better than flat.
NH

In June, the hangover from the wedding should have cleared and most of the Olympic strength budget squeeze should have passed, probably causing a marginal increase in volumes. However, the squeeze on household incomes from high inflation and subdued wage growth is unlikely to ease much in 2011 and should thus continue to constrain sales.
NH

strip it all out
NH

and I guess the conclusion is
NH

that there will be zero growth in consumer spending this year
BE

Hang on. But food sales fell sharply. FOOD SALES. Are we saying that people stopped buying pizzas because they might have a ticket for the volleyball?
BE

I’m not buying this at all.
NH

yep
NH

they put so much money on their credit cards
NH

for tickets they were never going to get
NH

they stopped eating
NH

and in any case
NH

having stuffed themselves
NH

over easter and the Royal Wedding
NH

they were dieting
BE

Right – comment?
NH

OK
NH

here’s a bit of Archer
NH

The slump in retail sales in May does not bode at all well for GDP growth in the second quarter and further increases the chances that the Bank of England will delay hiking interest rates until 2012.Retail sales fell back much more than expected in May, thereby indicating that seriously pressurized and worried consumers put their hands straight back in their pockets having been tempted into temporarily loosening their purse strings in April by the Royal Wedding, later |Easter and very good weather.

NH

Indeed, the 1.4% drop in retail sales in May more than outweighed the 1.1% jump in April. This is particularly worrying for second quarter GDP growth prospects given that consumer spending accounts for 65% of GDP.The squeeze on consumers’ purchasing power has been highlighted once again this week by data showing that consumer price inflation remained at 4.5% in May which was substantially above average earnings growth around 2.0% in April. Furthermore, the retail price deflator climbed to a 32-month high of 3.8% in May from 3.7% in April

 

NH

onsumer spending fell by 0.6% quarter-on-quarter in real terms in the first quarter of 2011, and the likelihood is that it will stay very weak for some time to come as household purchasing power remains under severe pressure from high inflation, low wage growth and tighter fiscal policy. Furthermore, soaring utility bills will shortly add to the squeeze on consumers.
NH

all of which means
NH

the BoE
NH

has another reason to keep rates on hold
NH

(fjp we aren’t looking at Southern Cross. A political story now)
BE

(@Ptolemy: basket effect should smooth seasonality, no?)
BE

Yup – HSBC to underline that point.
BE

Special factors have clearly been at play on the UK High Street in recent months, and
a weak May figure always looked likely given the strength observed in April. But abstracting from Royal Weddings,
public holidays and the weather, UK consumer spending is under real pressure and this weakness is now becoming a
more enduring and worrying theme.
BE

Food store sales were at the centre of the May weakness, falling by 3.7% during the month after a gain of 2.3% in the previous
month, and again this fits with the narrative of entrenched weakness re-emerging following the exceptional factors of April.
Given that this category includes the larger supermarkets and therefore retailers offering a wide range of goods and services,
the decline is indicative of broad based weakness in consumer spending, and large reversals were also seen in the clothing
& footwear and household goods categories. Certainly, the news from the larger supermarkets of the past few weeks has
suggested that the April blip has done little to ameliorate the underlying weakness of spending, with one Chief Executive
recently commentating that the current consumer environment is the most challenging seen for several decades.
BE

That said, the extent of the May decline in retail sales could still be viewed as something of a surprise. The British Retail
Consortium survey of the month was undoubtedly weak but not disastrous, while the major surveys of consumer confidence
had actually shown very strong improvements over the month. The relationship between such measures and actual spending
patterns across the economy has, admittedly, always been rather tenuous. But what today’s data illustrate is that whilst an extra
day’s holiday, a Royal Wedding and some good weather may make UK households feel slightly better about themselves, the
fundamentals behind consumer spending remain extremely challenging.
BE

The data releases of the past few days, for instance, have again shown wage growth and inflation to be on very different paths,
while the mixed messages being received with regard to employment patterns still appear to be consistent with weak consumer
spending. Having already declined over the past two quarters, today’s data again raise the prospect that consumption will fail to
make any positive contribution to the current quarter’s growth, effectively hobbling the overall recovery. We view any genuine
discussion around another phase of quantitative easing in the UK as being some way off, not least because of the stubbornly
high level of inflation. But as Bank of England Governor Mervyn King’s Mansion House speech last night suggested, we see
little appetite across the Committee to force domestically-generated inflation lower given the very fragile growth outlook. As
such, the prospect of a rate hike being delivered anytime soon appears increasingly distant.
NH

(FJP – we are not looking at it because the politics people are now handling it)
NH

OK are we done here
NH

a few people were asking about Ashtead
Ashtead Group PLC (AHT:LSE): Last: 160.50, down 17.5 (-9.83%), High: 180.00, Low: 160.00, Volume: 5.87m
NH

bought time this thing came back to earth
NH

massive fan club in the City
NH

everyone a buyer
BE

Easy way to play US cyclical recovery (or otherwise) I guess.
BE

Proxy for Yank construction trends.
NH

true
NH

the results look OK
NH

but the stock has had a hell of a run
NH

and the outlook isn’t great
NH

I guess we chalk this one down to profit taking?
BE

Yeah – partly
BE

Upgrades are coming through
BE

But not to the degree expected following good news from peers such as United Rentals
BE

RBS, which I think is house, gives the positive view.
BE

FY11 results modestly ahead of Bloomberg consensus, positive outlook statement likely to
lead to mid single digit consensus upgrades for FY12 & FY13. FY11 revenues £948.5m, PBT
£31.0m, EPS 4.0p, DPS 3.0p. (Bloomberg Consensus revenues £919m, PBT £30.62m, EPS
4.0p, DPS 3.0p). FY11 net debt of £776m boosted by FX benefit of £73m, giving FY11 net
debt/EBITDA of 2.7x. Sunbelt rental revenues were up 10% in FY11 (5% fleet growth on rent,
3% yield, 2% FX). Capex of £225m in FY11, with positive momentum in the business,
management now planning capex of £325m in FY12.
NH

let’s have a look
BE

Whilst management remain cautious on general US construction markets, with Q1 2011 US
construction starts -10% yoy, Sunbelt saw rental revenues +13% in 4Q11. In addition FY12
has started positively with Sunbelt rental revenues +15% in May 2011, boosted by recent
natural disasters (tornados & floods), with improvement broadly spread in terms of geography
and equipment type, giving management confidence of continuation of positive structural
trends in FY12/13 – increased use of rental equipment rather than purchased kit in USA. US
rental penetration is currently just 40% compared to 70% in UK. Every 1% increase in rental
penetration =c$700m market growth.
BE

Currently; Bloomberg consensus Ashtead forecasts for FY12 are revenues £963.8m, PBT
£53.9m, EPS 6.9p, DPS 3.2p. We anticipate consensus FY12 PBT/EPS forecasts are likely to
increase by c5% to PBT c£56m-£58m. Please note as RBS FY12 PBT/EPS forecasts are
currently below consensus at £50m/6.45p, any RBS forecast change may be greater than the potential consensus PBT/EPS movement.
BE

And here’s Investec with the more downbeat interpretation.
BE

FY11 results are in-line with our expectations and have been delivered through
market share gains and self help measures to improve business performance.
Although continuing challenging end market conditions are likely to constrain
upgrades, we expect consensus FY12 PBT to move to the high £50m’s and
therefore leave our forecasts unchanged. We remain a Buyer on the basis of
the strong long-term structural growth story in the US and would capitalise on
any disappointment on the lack of significant upgrades.
BE

FY11 results in line/marginally ahead: Revenues for FY11 increased 11% to
£948.5m (£836.8m), EBITDA improved 9% to £283.8m (£255.1m), on marginally
lower margins due to higher used equipment sales, and operating profit was up
41% to £98.8m (£68.5m). Underlying PBT advanced to £31m (£5m) and EPS
increased to 4p from 0.2p which is a marginally stronger performance than the
£28.8m/3.7p we were forecasting.
NH

(GANK haven’t I banned you before?)
BE

Forecasts unchanged: With end markets still challenging, visibility over the
second half is difficult and this is likely to constrain the level of upgrades.
Nevertheless we expect the FY12 PBT consensus to move from the mid-£50m’s
to the high £50m’s. As we are already at this level, we leave our forecasts
unchanged.
BE

Our view: Although there may have been an expectation in some quarters of
sizeable upgrades, which could cause some disappointment this morning, we
would view any weakness as a buying opportunity. We remain Buyers with an
unchanged cash flow-based target price of 250p
BE

You get the idea.
NH

(Yes I have and I will do it again)
NH

ZAP
Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.
NH

so
NH

results not quite as good as the market was hoping for
12:27PM
NH

OK a couple of things before we end
NH

Mulberry
NH

what do you reckon the market cap is now?
NH

have a guess
BE

Um — £50m?
NH

come on
NH

be serious
NH

this is luxury goods
BE

I was. Er …. £100m?
BE

It’s a one-product company, surely?
NH

higher
BE

£150m?
NH

you’re are not being serious
NH

the Chinese love all this luxury clobber
NH

so much so
NH

it’s now worth £850m
Mulberry Group PLC (MUL:LSE): Last: 1,432, up 97 (+7.27%), High: 1,479, Low: 1,380, Volume: 39.55k
BE

Oh. My. Word.
BE

Er …………
BE

That’s …. um …….
NH

it was virtually bust 10 years ago
NH

under the leadership of Roger Saul
NH

a Jason King type character
NH

if memory serves me correctly
NH

anyway
NH

yes it’s worth £850m
NH

but sales are growing quick
NH

LFL Retail sales up 42% over the last 10 weeks
BE

Er ……….
BE

Why?
NH

pass
NH

new bag
NH

I haven’t a clue
BE

Is the market for handbags in expansion phase?
NH

but this is the NEW BURBERRY
BE

Are there more women in the world all of a sudden?
NH

brand can grow globally
NH

shops in China
NH

India
NH

Russia
NH

FTSE 100 company
BE

Fair enough then. They’re handbags. I’m really not in my comfort zone here.
BE

Can we have some comment?
NH

hang on
NH

Here’s Altium
NH

who reckons it’s worth £20 a share
NH

that’s an ASOS like price
NH

and they aren’t even dot.com
NH

Preliminary results have come in ahead of our expectations on all metrics Group revenue increased in the year by 68.8% to £121.6m, with PBT +358% to £23.3m, some 8.4% better than we had forecast and EPS +473%, 12.5% ahead due to the lower tax charge. The gross margin rose by 640bps to 65.4%, partly as a result of reduced off price sales. Year end net cash increased to £21.4m from £12.2m. Of particular note is the 145% growth in international revenue in the year and online sales growth of 64%.
NH

feel the international growth
NH

The current financial year has begun well. In the ten weeks to 4 June, retail sales have moved ahead by +38%, with l-f-ls at +42% and full price UK retail l-f-ls at +33%. Autumn/Winter 2011 third party orders are already 38% ahead of the total Autumn/Winter 2010 orders placed, with five months selling remaining.
NH

We have increased our two year earnings expectations by 12.8% and 12.1% respectively, following similar increases in both January and March. We raise our revenue expectations by 6.6% to £165.0m for FY2012E and by 5.7% for FY2013E, which feeds through to a 9.5% increase in our FY2012E PBT expectations and 7.5% in FY2013E, EPS also benefiting from a reduction in our tax charge assumptions. We believe that this could be just the beginning of the Mulberry story given the limited footprint held in many of the largest luxury goods markets outside the UK, including the US, Continental Europe and perhaps most importantly, Asia Pacific. With the shares now 16% away from their peak, we maintain our Buy recommendation and 2000p share price target based on 5.5x FY2013E sales.
NH

what PE is this on
BE

I’ve got it on 52 times 2011.
NH

cool
BE

On current price. Though without whatever’s delivered in terms of upgrades.
NH

still on retail
Supergroup PLC (SGP:LSE): Last: 820.00, up 1.5 (+0.18%), High: 824.50, Low: 780.62, Volume: 367.27k
NH

a nice bit of comment
NH

from Nick Bubb
NH

at Arden
NH

SuperGroup (Buy): It would be nice to know what SuperGroup’s Retail LFL sales have been over the last 10 weeks…but, needless to say, we doubt if management will give too much away on the subject at Monday’s Analyst and Investor Day at HQ in Cheltenham.
NH

This was set up to stop the rot in investor confidence, ahead of the finals on 13 July, but instead it just seems to have made the situation worse, by inhibiting potential buyers who want to wait to hear what the company has to say before averaging down. So the bears have had a field day, driving the share price down towards 800p, with a notable lack of support from the new joint house brokers Merrill Lynch. Monday’s visit needs to go well to reverse this alarming collapse in the share price. The share price is telling us that our profit forecasts are too high, as we can’t believe that the market really thinks that the outlook for SuperGroup is no better than for Ted Baker…but we shall see. The shares look dramatically oversold at this level and we have all our fingers and toes crossed for Monday…
BE

Right – and I think we’re done.
NH

yes
NH

running way over time
BE

So let’s end this.
BE

Thanks for all your comments today.
NH

yes
NH

thanks all
NH

cya tomorrow
BE

Afternoon.

 

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