Markets Live transcript 17 Jun 2011

Posted by Neil Hume on Jun 17 11:04. 214 comments | Share

Markets Live chat transcript for the chat ending at 11:28 on 17 Jun 2011. Participants in this chat were: Neil Hume, FT bryce.elderNH
Right

NH
that’s better
More…

Markets Live chat transcript for the chat ending at 11:28 on 17 Jun 2011. Participants in this chat were: Neil Hume, FT bryce.elder

NH

Right
NH

that’s better
NH

the bug is gone
NH

let’s just give people a minute or so
NH

to migrate from the old session
NH

and also so I can turn the TV
NH

on to the cricket
NH

then we shall begin
NH

quite excited about today’s session
NH

lots of my least favourite companies are in the news
BE

Yeah – it’s a good selection today.
NH

(still raining at the Rose Bowl. Drought what drought. Every time there’s a test match is hoses down)
BE

And we’ve had the FTSE’s artificial rally into the options expiry, so there’s plenty of scope for ML effect to kick in.
NH

already happening
NH

we were down 13 points a moment ago
NH

we are now off 20 points
NH

at 5,679
NH

and I fully expect to see us
NH

all the way back at 5660
NH

by the end of the show
NH

right then
NH

we might as well get all the Greek stuff out the way first up
11:08AM
NH

cabinet has been reshuffled
NH

the finance minister gone
BE

Deckchairs/Titanic.
NH

replaced by some hardliner from the north
NH

George Papandreou, prime minister of Greece, has replaced his finance minister in a broad cabinet reshuffle to counter widespread anger over tough new austerity measures essential to prevent Greece from a disastrous default.
Former defence minister Evangelos Venizelos, who challenged Mr Papandreou for the party leadership four years ago, will become finance minister, replacing George Papaconstantinou, who takes over the energy portfolio.
Mr Papaconstantinou had become unpopular with the socialist party over his refusal to dilute EU-IMF mandated reforms and was seen by Greek voters as the harsh face of austerity.
BE

(@Milky: yellow. Immediate yellow. Like Uruguay in the World Cup.)
NH

will that be enough to get the austerity package through parliament?
BE

No.
NH

fair enough
BE

Quite the reverse, in fact.
NH

straight to the point
BE

Why would what appears to be a populist, pandering bit of social realpolitik help the process?
NH

probably not
NH

but he has to do something
BE

Seems to me this is for the rioters, not the Germans.
NH

and Pakora is right
NH

the new finance minister is rather large chap
BE

Evangelos Venizelos
NH

a real heavyweight minister
BE

Looks like a cross between Meatloaf and John Prescott.
BE

Terrifying.
NH

right
NH

we have some flashes hitting the tape
NH

from the Merkel/Sarko meeting
NH

RTRS-GERMAN CHANCELLOR MERKEL SAYS DOESN’T MAKE SENSE TO SET SPECIFIC DEADLINE FOR GREEK AID AND PRIVATE SECTOR ROLE
11:06 17Jun11 RTRS-GERMAN CHANCELLOR MERKEL SAYS DOES NOT WANT TO TRIGGER CREDIT EVENT
11:07 17Jun11 RTRS-GERMAN CHANCELLOR MERKEL SAYS WE ARE NOT TALKING ABOUT SEPTEMBER FOR GREEK AID DEAL, BUT WORK TO DO
11:09 17Jun11 RTRS-GERMAN CHANCELLOR MERKEL SAYS VIENNA INITIATIVE GOOD FOUNDATION FOR PRIVATE SECTOR PARTICIPATION
11:10 17Jun11 RTRS-GERMAN CHANCELLOR MERKEL SAYS GREEK PM READY TO FIGHT, EUROPEAN COUNCIL MUST SHOW SUPPORT
NH

interesting I suppose
NH

but if the Greek parliament don’t vote through the package
NH

all bets are off
BE

Meanwhile, there’s a bailout story doing the rounds.
NH

there is
NH

let me grab that
NH

MKt/€ spiking on spec new aid package for Greece will be €150b, €80b new cash, €40-50b from privitasations with €30-40b from rollover of Greek bonds… And its expiry!
BE

Yeah, that seems to have come from here
BE

The URL says it all, really.
NH

wow
NH

that’s some URL
BE

Cryllic doesn’t work very well on Firefox 2.0, or whatever we’re using.
BE

Προβληματισμός στην αγορά για το νέο κυβερνητικό σχήμα – Εκτόξευση των CDS στις 2100 μ.β. – Mη πειστική αντίδραση στο ΧΑ και στις τράπεζες που ανέμεναν κάτι καλύτερο…
Προβληματισμός στην αγορά για το νέο κυβερνητικό σχήμα – Εκτόξευση των CDS στις 2100 μ.β. – Mη πειστική αντίδραση στο ΧΑ και στις τράπεζες που ανέμεναν κάτι καλύτερο…
17/06/11 – 12:54
Bank Insider
(upd4)Η αγορά ανέμενε κάτι καλύτερο από την νέα ανασχηματισμένη κυβέρνηση. Ανέμενε την ισχυρή παρουσία τεχνοκρατών, ανέμενε ένα μικρό κυβερνητικό σχήμα που θα αναλάμβανε να διαχειριστεί την μεγαλύτερη κρίση…
Στο νέο πακέτο στήριξης και όχι τόσο στον ανασχηματισμό ποντάρουν οι έλληνες τραπεζίτες….αλλά δεν είναι όλοι αισιόδοξοι – Προβλέπουν και εκλογές σύντομα….
BE

There you go. Hope that helps.
NH

yes, thanks for that
NH

OK
NH

let’s leave Greece
NH

and head for home
NH

(@Milky – what on earth do you want us to say on the witching?)
NH

(@ it’s up there with market makers manipulating stock prices as a tenuous reason to pin things on)
11:16AM
NH

Right then
NH

a few of the Rabble asking about this
NH

From Computing
NH

UK-based business and software services company Sage is rumoured to be in discussions with both IBM and SAP regarding a potential acquisition.
A Sage insider told Computing that the company is in “talks” with both vendors, and that being part of a larger organisation would “benefit the business”.
“We are in a period of reflection at Sage,” he said. “The company is looking to double our customer base in five years, which is quite a challenging path.”
“The structure of the organisation holds us back, and we would certainly benefit from more collateral and capital expenditure”.
The source believes that being acquired by SAP or IBM would help to streamline internal processes and potentially fund a restructure.
“I don’t think there is anything wrong with the Sage brand in the market. We might just come under SAP’s or IBM’s remit and operate on their accountancy books, but continue business as normal,” he added.
Sage was unwilling to comment on the rumour, as was the managing director of Sage’s UK partner, Datel.
Sage Group PLC (SGE:LSE): Last: 284.00, up 3.2 (+1.14%), High: 287.70, Low: 277.00, Volume: 5.41m
BE

Hm.
BE

Odd story, that.
BE

The tone of the guy quoted is …….. odd.
BE

“The structure of the organisation holds us back, and we would certainly benefit from more collateral and capital expenditure”.
NH

yes the sourcing is odd
NH

and it’s not going to happen is it
NH

IBM and SAP won’t be interested in Sage
BE

There are a hundred reasons why it probably won’t.
NH

they sell to be companies
NH

Sage sells its software to little SME’s
BE

98% of its customers have fewer than 500 employees.
NH

wow
BE

Which means lots of churn
BE

Because they go bust.
NH

indeed
NH

Now, if you told me Sage was about to sell its healthcare business
NH

I might believe that
NH

or Intuit were going to have a look
NH

I could see that
NH

but IBM and SAP???
BE

Well, healthcare’s for sale. I think we’re all agreed there.
BE

The obvious buyers would be Allscripts, perhaps.
BE

Or Cerner.
BE

I guess IBM or Sap might get involved, though would they want to buy a market laggard?
BE

This business is for sale because it’s failing.
BE

Who buys a business like that?
BE

(Bar Autonomy, obviously.)
BE

As it is, SAP does have a bit of overlap with Sage in the likes of ERP and BI.
BE

But an acquisition would push its client base towards the shrink-wrapped end of the market.
BE

Which, I thought, isn’t a place Sap particularly wants to be.
NH

It’s not
BE

And IBM doesn’t really buy end market stuff. Or, at least, hasn’t for many years.
NH

they don’t want to be on the top shelf
BE

And we have to remember that Sage still needs to reinvent its model.
BE

It’s well behind Intuit and Salesforce in the move to online selling.
BE

There’s a lot that can go wrong. In short, can’t see this at all.
NH

right a little bit of comment
NH

and let’s move on
NH

accounting software for SME’s
NH

not really the most exciting of topics
NH

Of IBM and SAP, SAP could use Sage’s distribution and customer base to sell their new On-demand products over time. But I’d be surprised if this happens, as SAP have normally bought companies that add technology to sell across their installed base, and Sage is not that, so it would be a big change, and with Hasso Plattner more involved again at SAP, they has got back to their Tech roots more than ever, and this would not really fit. IBM has an SMB business but it’s very much mid-sized companies and recall Dassault taking SMB distribution back off IBM as they felt it wasn’t what they were good at. File under “unlikely”.
BE

Hm. Sage’s distribution network’s wide but messy.
BE

Not really buying that angle either.
BE

If anything, it probably needs a comprehensive trim, which’d be a very tricky job.
11:25AM
NH

Hang
NH

on
NH

the ML effect
NH

is not working
NH

the FTSE 100 is now UP!
NH

3 points at 5,701
NH

the expiry must have been weighted to the sell side
BE

Greek relief? Vienna-style rollover?
NH

(@Milky you are very very close to getting life)
BE

“This is a breakthrough in bondholder involvement,” says Sarkozy.
NH

yeah, right
NH

and so we turn from one unlikely bid story
NH

to one that’s just plain dumb
Supergroup PLC (SGP:LSE): Last: 915.00, up 78 (+9.32%), High: 925.00, Low: 841.50, Volume: 320.60k
NH

apparently Abercrombie & Fitch want to buy it
NH

can’t think for the life of me why
NH

but that’s the rumour
NH

and its caused a real Emoticon
NH

in Bryce’s favourite retailer
BE

I actually, genuinely, laughed out loud when I read that one on the Tube this morning.
NH

really
BE

Didn’t recognise the noise at first. So long since I’d heard it.
BE

I mean seriously …………
BE

Why?
NH

I don’t know
BE

Why would Abercrombie buy Supergroup?
BE

It’s bobbins.
NH

A&F have their own Superdry brand in Hollister
NH

why they want this
NH

and all the stores
NH

I don’t know
NH

(@Squarepeg it could be)
NH

on top of all that
NH

I really think the CEO Dunkerton believes
NH

Superdroop will be the next A&F
NH

in fact it will be bigger than A&F
NH

so he won’t be selling
BE

(@alanjhay: St Andrews has turned into an Essex suburb. I’d be more concerned that there’s a Superdry across the bridge in Dundee.)
BE

(That’s a better sign of over-extension. Primark’s considered midmarket in Dundee.)
NH

Right
NH

even the Supergroup apologist isn’t buying this rumour
BE

This is our old friend Nick Bubb.
NH

it is
NH

SuperGroup (Buy): The Evening Standard story that SuperGroup is being lined up for a bid by Abercrombie & Fitch seemed a rather desperate yarn to discomfort the shorts, but it had some effect in rallying the share price yesterday from below 800p. Obviously, a huge US fashion brand with a market cap of $5.7bn could easily snap up SGP if it wanted to, particularly as the shares are half the price they were a few months ago…but that doesn’t mean to say that they will. Management control 64% of the stock and everything depends on their attitude. They have a lot to learn about PR and communications…but we read CEO Julian Dunkerton as somebody keen to prove his doubters wrong and go on to drive Superdry on to be a global brand, rather than somebody who will give up on PLC life and just be absorbed into a US group. So, Monday’s Analyst and Investor Day at HQ in Cheltenham will be both timely and important!
NH

and talking of Monday’s investor
NH

day
NH

scheduled for three days before results
NH

I have the itinerary
NH

want to see it?
BE

Absolutely.
NH

exciting stuff
NH

there’s a bus from Swindon
NH

to take people to Unit 8
NH

of some retail park
NH

to see the Supergroup HQ
NH

sounds thrilling
BE

(@tk: St Andrews is posh, mostly, though with significant patches of not-so-much. Disclaimer: I went to school there.)
NH

Julian Dunkerton, Chief Executive, and Chas Howes, Finance Director, will be hosting a presentation for sellside analysts and investors which will take place at 12 noon on Monday, 20 June 2011 at SuperGroup’s Head Office in Cheltenham at:
NH

The SuperGroup ShowroomUnit 92, The Runnings

Cheltenham

GL51 9NW

Tel: 01242 588 187

(see map attached above)

 

NH

They will be joined by several members of the Group’s operations team including: James Holder, Brand and Design Director; Theo Karpathios, Chief Executive Officer (Wholesale and International); Luc Clement (Head of European Development), Chris Griffin (Head of E-Commerce) and Nigel Jobson (Head of Property).The schedule for the day will include an overview of the business with updates on current design, alongside UK and international growth opportunities. The day will commence at 12 noon in Cheltenham and complete around 1515 hours. A brief outline of the itinerary is outlined below:

 

NH

The schedule for the day will include an overview of the business with updates on current design, alongside UK and international growth opportunities. The day will commence at 12 noon in Cheltenham and complete around 1515 hours. A brief outline of the itinerary is outlined below:10:00: Train from London Paddington – Swindon

10:55: Coach transfer from Swindon – Cheltenham* (see travel arrangements section below for those travelling by train from London)

12:00: Lunch and Introduction from Peter Bamford, Chairman of SuperGroup PLC

12:20: Strategic business update: Jules Dunkerton, Chief Executive & Chas Howes, Finance Director

12:50: Q&A

 

NH

3:15: Split into small groups for 1:1 briefings with:James Holder – Product / Design

Theo Karpathios – Sourcing / Supply chain

Chris Griffin – Internet

Nigel Jobson – Property

Luc Clement – International Franchise

14:55: Final comments from Peter Bamford, Chairman

15.15: Conclusion of formal proceedings/guests embark coach

16.11: Train departs Swindon for London Paddington (arriving London Paddington @ 1714 hours)

 

 

NH

Travel arrangements:(a) If travelling by train from London Paddington to Swindon:

If you are planning to travel by train, please note that a coach will be provided from SWINDON station at 1100 hours to transport investor day attendees to SuperGroup’s offices in Cheltenham.

On arrival at Swindon, please make your way to the front entrance of the station where Jamie Ramsay from College Hill will be there to meet you. The coach will be waiting in the coach bay, it is red and is branded “Marchants”. There will also be a SuperGroup sign in the window of the coach. If you have any problems locating the coach on the day (or are running late), please contact Jamie Ramsay on 07917 178920 to let him know.

We are aiming to conclude the schedule for the day at approximately 1515 hours after which a coach will depart from Cheltenham to take guests back to Swindon station for the return journey to London which is approximately a 45 minute journey (traffic permitting).

 

 

BE

This sounds thrilling.
NH

it does
NH

what’s the short interest in the stock now?
NH

any idea
BE

Can find out. Give me a moment.
NH

Bryce
NH

has just gone over to the Bloomie
NH

amuse yourselves for a moment please
NH

I’d play some muzak now
NH

if I could
BE

Right – so 9.1% of free float out on loan.
NH

(@ fta222 – they are already kitted out. Them and fat bloke bankers in the City)
NH

not that high then
BE

Nope. And That’s down from a high of 11.8% about a week ago.
BE

About 7 days to cover.
BE

Figures via Data Explorers.
NH

Jarvis
NH

you may not have noticed
NH

but the low income demographic in this country aren’t spending
NH

and I reckon
NH

they make a fair bit of Supergroup’s customer base
BE

Still on 18 times 2011.
NH

is it
NH

Emoticon
NH

too high
NH

although there needs to be something in the rating
NH

for the Great Chinese expansion
BE

French Connection’s on 10.
BE

Lower growth, obviously, if you believe Supergroup’s growth.
BE

Just like FCUK was.
NH

If I want to buy a hugely overvalued retailer
NH

with real overseas expansion potential
NH

there’s really only one stock
Mulberry Group PLC (MUL:LSE): Last: 1,417, down 33 (-2.28%), High: 1,490, Low: 1,410, Volume: 9.27k
BE

(@BMAlpha: yellow for calling me Bruce.)
NH

actually for any analyst going on Monday
NH

can somone ask Jamie this question
NH

why are you blowing all that cash
NH

on the former Austin Reed store in Regent Street?
NH

£12m for the lease
NH

£2.5m a year in rent
NH

why
BE

Looks like corporate vanity. And I’ve yet to hear any argument suggesting otherwise.
BE

One-range company taking over five floors of prime Regent Street.
BE

Looks wrong. Feels wrong.
NH

(@FJP – is Mulberry easy to short. There’s no free float)
NH

moving on then
11:42AM
BE

Still in the world of retail.
BE

How’s Webvan v2.0 doing?
NH

not too bad
Ocado Group PLC (OCDO:LSE): Last: 208.70, down 5 (-2.34%), High: 211.00, Low: 207.10, Volume: 1.18m
NH

i thought it would have been off more
NH

in the wake of Waitrose news
NH

personally
NH

I am still reeling from the Gissing interview
NH

Back in the office there is an e-mail waiting for me. “Note to self,” it says. “Never sit down with a journalist after a three-day party to celebrate the 40th birthday of one’s wife. I fear I have come across as a rudderless, sentimental, slightly faded entrepreneur rather than taking the opportunity to firmly stamp Ocado’s pioneering business (and its green conscience) on the general public.”Gissing, unusually for a businessman, has got himself rather well.

 

An internet food retailer that many believe is the second coming of Webvan. Loss making yet valued at close to £1bn on flotation.
NH

that was the end of it
NH

and it’s well worth a read
NH

but to Waitrose news
NH

we knew it was coming
NH

and it’s here
NH

Waitrose is gearing up to give its online grocery service its biggest push yet, as it prepares to take on Ocado in the lucrative London market.Waitrose will say on Friday it is kicking off a marketing campaign for its online grocery arm – renamed Waitrose.com in March – as it prepares for full competition with Ocado within the M25 next month.

The campaign, which will emphasise Waitrose’s service, and its free delivery on orders over £50, will begin outside London at the end of June, before extending into the capital in July and August.

 

BE

It’s news, obviously, though not unexpected.
BE

Waitrose has been ramping up its online side for some time
NH

they have
NH

but it serves as reminder
NH

that competition is heating up
BE

Do customers know the difference between Waitrose and Ocado? Not yet, I guess.
NH

they soon will
NH

anyway
NH

let’s cut to the excellent Clive Black at Shore Capital
NH

a think Gissing has a voodoo doll of him
NH

that he sticks pins in
NH

We would expect a gradual build up of trading activity by Waitrose in London not least because it does need to make fulfilment work, something that Ocado has done with some aplomb although we have to say that service levels have not been what they used to be in recent months. We have seen in our personal use more substitutions at Ocado in 2011 than was the case in 2010 and it is not just us, several portfolio managers in London have mentioned such experiences in our conversations as well in recent weeks.
NH

Oh dear
NH

fund managers getting subbed in their Ocado order
NH

not good
BE

Hampstead will be unsettled.
NH

outraged
NH

unhappy of Hampstead
BE

Holland Park nearing mutiny.
NH

It’s not just Waitrose either…Waitrose, which remains a true and excellent retailer as opposed to a distributor, will especially bolster its capability towards on-line grocery fulfilment in London in the autumn when its major depot opens, easing the burden of in-store picking. And Waitrose’s investment and more serious involvement in on-line grocery is not the only challenge that Ocado faces in its most significant market by a country mile:

 

NH

* Sainsbury’s (SBRY^, Hold) recent trade may have been subdued in-store (1.9% like-for-like [LFL] sales) but its online activities are growing in excess of 20% year-on-year, ahead of the recent run-rate outlined by Ocado (which was c17% in the latter weeks of its last trading period, which disappointed the market).* Tesco UK (TSCO#, Buy) is refining its online offer with better client communication (texting), improved delivery slot options (one hour down from two) and the exploration of introduction of click ‘n’ collect for grocery; the latter being something Ocado cannot match. Tesco is also investing in the London on-line grocery market with a 150k sq ft dedicated ‘dark’ store in Enfield, in the north of the capital

 

NH

* Marks & Spencer (MKS^, No Recommendation, Coverage Pending), could be the commercial ‘iceberg’ for Ocado though with its excellent brand reputation, fabulous range, but limited full service shop access to the customer; on-line grocery could be a strategically significant opportunity. In this respect, CEO, Marc Bolland’s appointment of Tesco.com’s Laura Wade-Gery is all the more potentially relevant to our minds.
NH

What we are saying here, therefore, is that whilst the online grocery market is growing faster than the store based one, the competition is also hotting up in that space with significant capacity additions. Ocado faces a material threat, to our minds, from Waitrose. However, it does not end with Mark Price’s vans. Vans of all colours and hues could be coming up a cul-de-sac in Kennington, Kensington and Kentish Town in the next two years making for choppier waters for the Ocado team. Accordingly, Ocado is arguably more dependent than ever on market growth, noting that the group’s EBITDA expectations have been downgraded twice since flotation without Waitrose competing against it within the M25 and with a rosier UK consumer environment behind us.
BE

Yeah – that’s the bigger issue here.
BE

How much growth is there left in online groceries?
NH

Undeserved premiumGrowing competition asks further questions for the justification of the stock rating of Ocado. Growing competition also reduces, to our minds, the already low likelihood of a premium priced acquisition of Ocado; noting the cheque that still has to be written to John Lewis should such a move by a UK based competitor ensue. Waitrose’s entry into the London grocery market reminds us of the realities of the Ocado business model and leads us to reiterate our SELL stance on the share.

 

BE

And how many companies are — quite understandably, given the minimal costs involved — going after the same customers?
BE

Ok – so Ocado’s got first mover advantage
NH

and it does have the best warehouse technology
NH

I’ll give them that
NH

miles ahead of the competition on that front
NH

and it’s bespoke
BE

True – but they’re facing a turf war.
BE

With competitors better able to run online as a loss leader to gain customers.
BE

(Apologies for playing 1999 bullspit bingo — it’s irresistible when talking online.)
BE

And, as Clive notes, all it takes is for Ocado do let standards slip a tad and they’ve lost customers forever.
NH

unforgiving the home counties middle class
NH

OK
NH

we could bang on about his for hours
NH

and we haven’t got hours
NH

more like 20 minutes
NH

and there’s a mountain of other stuff to get through
BE

If that, actually. I have a lunch again.
BE

Right, what now?
11:53AM
NH

Someone was asking about the RBS downgrade of
Imagination Technologies Group PLC (IMG:LSE): Last: 440.80, down 24.3 (-5.22%), High: 453.50, Low: 428.00, Volume: 1.02m
NH

Bryce
NH

the analysts on the chip side at RBS
NH

is pretty good
BE

Good team, actually. David O’Connor and Didier Scemama.
BE

And this is ahead of results too.
NH

go on
BE

June 22.
NH

let’s av it
BE

FY12F consensus unit shipments seem ambitious to us
FY12F company-compiled consensus unit shipments (366m) appears too high to us as it
does not reflect two key trends: 1) Samsung’s adoption of ARM GPU in the high end,
replacing IMG, and 2) IMG’s lack of traction in low/mid-end smartphones, where we expect
disproportionate growth in the medium term. We have cut our FY12 unit shipment estimate
from 323m to 298m, which puts us around 18.5% below consensus.
BE

Samsung share loss + market shifting to low/mid-end smartphones are the key issues
At Samsung, we are concerned that the loss of the GPU socket to ARM in the Exynos apps
processor could lead to greater market share erosion for IMG than the market anticipates, as
dual-core ARM-based processors progressively replace IMG-based processors in the high
end. At the low/mid end, where Android is increasingly the OS of choice, our survey shows
IMG’s share has fallen to around 28% of design wins in 2Q11F vs 41% in 2Q10. This is due
to IMG’s lack of success in lower-cost integrated chipsets (none of which use IMG), which
now account for around 72% of all models vs 62% a year ago. Overall, we estimate IMG’s
unit share in smartphones could drop from 50% in FY10 to 39% in FY12F. We could be
wrong if Apple decides to launch a cheaper (
BE

Medium-term story remains attractive, though
Although we expect some near-term disappointment relative to smartphones, we remain
positive on IMG’s prospects in tablets (iPad mostly) and in portable PCs (through TI) with the
launch of Windows 8 on ARM CPUs. However. we believe both factors are not material
enough in the next 18 months to offset potential smartphone share loss.
BE

Cutting FY12/13 EPS estimates 6-15%; downgrade to Hold, with TP cut to 450p (590p)
We are now 18% below consensus for FY12F EPS. Our new target price of 450p is based on
a probability-weighted bear/bull scenario (bear 222p; bull 590p).
BE

And while on chips
BE

Should look at another reader favourite
CSR PLC (CSR:LSE): Last: 319.70, up 11.6 (+3.77%), High: 323.80, Low: 299.90, Volume: 1.37m
NH

Ah yes
NH

they have changed the terms of their very very unpopular merger with Zoran
NH

Bluetooth chip company buying something that makes sensors for digital sensors
BE

(@Swedes: no. In a company office. Private catering.)
NH

if you can figure the logic in that pls let is know
NH

anyway
NH

they have moved from all stock
BE

Diversification. That’s about it, really.
NH

to cash and stock
NH

and claim they are paying less
NH

which I am not to sure about
BE

Well, indeed.
BE

CSR shares have done dreadfully since the deal was announced.
BE

And Zoran was already trading at about a 30% discount to the terms.
NH

the ration when the deal was announced was 1.85
NH

so based on the price on that day
NH

yes they have lowered the offer
NH

and yes there will be less dilution
NH

but it’s still an awful deal
NH

and the reason the shares are up
NH

I guess
NH

is that CSR has actually managed
NH

not to warn on profits
BE

Exactly. No profit warning.
BE

This has little to do with a rejigged price on an unpopular deal.
BE

Because Zoran remains a basket case, no matter how that’s structured.
NH

a basket case
NH

with some cash it must be said
BE

True – strip that out and you get some kind of sensible valuation.
BE

Though my brain can’t quite process the mechanics of paying cash for someone else’s cash.
BE

Here’s Citi on that point.
BE

Given ZRAN’s net cash balance of $251m, the deal implies CSR is
effectively paying only $62m in cash for the business. While the merger with ZRAN
does come with restructuring risks and does not aid CSR in turning around its handset
business, we see this as a relatively cheap price to pay for the addition of imaging IC
assets that may ultimately strengthen its non-mobile connectivity platform business as
well for the additional manufacturing scale. While CSR remains a tough stock to chase
given handset business woes and potentially lower M&A risk, we see these revised
terms as a positive.
BE

What was the break fee?
NH

$12m
NH

the deal is cheap
NH

but the question is
NH

why bother
NH

why not just put themselves up for sale
NH

and end it?
BE

CSR’s in a similar position to its customers, oddly enough.
BE

RIM and Nokia.
BE

Been outclassed by rivals
NH

RIM
NH

what can we say about that?
NH

shocking outlook
NH

mind you
NH

that’s what happens
NH

when there’s no new products
NH

perhaps they should merge with Nokia
NH

two drunks and all that
BE

That’s be a cultural clusterfunk.
BE

To mince my epithets.
NH

got any comment on RIM?
NH

stock got battered in after market trading
BE

Loads of downgrades coming though this morning.
BE

Here’s something good from Needham & Company.
BE

What do you do when your one trick no longer works?
BE

For the past decade Research in Motion has been a one-trick pony,
delivering the gold standard in messaging services. But that’s no
longer enough. Consumers now want phones that provide a broad
selection of software and services. RIM has responded far too
slowly. We’re maintaining our hold rating, cutting our fiscal 2012
estimate from $6.00 to $5.15 and initiating a 2013 estimate of $5.35.
BE

Blackberry’s messaging service has stood at the pinnacle of the
smartphone market for over a decade with the device dominating the
business market. But following the introduction of the iPhone in 2007,
the action in the smartphone market has swung to the consumer market
and to devices that delivered a broad set of software and services.
BE

Unfortunately, RIM’s skills as a hardware manufacturer have been
more than offset by it ineptness in software development, the focus of
competition today.
NH

thanks for that
BE

Absolutely on the money, I’d say.
NH

right
NH

let’s rewind to Nokia briefly
NH

because there’s a bit of read across
NH

Laird
NH

which has rebuffed a 185p a share bid from a US suitor
NH

has come out today and said
NH

WE ARE NOW A NOKIA FREE ZONE
BE

Which, oddly enough, was what its house broker was hinting at two days ago.
NH

Despite the restructuring actions taken, the Handset Antenna business ran only at breakeven during the first quarter and revenues continued to decline thereafter, reflecting reduced demand from the major customer. In 2010 this customer accounted for 70% of the business’ revenues. After consideration of a number of strategic options and discussions with the major customer, the Board has decided to close the Handset Antennae business. Existing contractual order obligations will be fulfilled during 2011 and 2012 but the closure process will start immediately.Following the closure of the Handset Antennae business, Laird’s revenues generated from what was historically its largest customer, are expected to be minimal.

 

NH

to be fair
NH

they announced a review of the handset business
NH

at the last IMS
Laird PLC (LRD:LSE): Last: 193.40, up 4.5 (+2.38%), High: 195.24, Low: 188.50, Volume: 3.01m
NH

and this is great timing
NH

given that Copper might return with a higher offer
NH

so
NH

Laird soon won’t have any exposure to the dog of the telecoms world
NH

but what they do have
NH

I believe
NH

is a booming business with Apple
NH

and the other iPad makers
NH

they can’t say that
NH

because Apple would go mental
NH

but they do
NH

anyway
NH

reaction to the bid has been mixed
NH

Michael Blogg at Arbuthnot
NH

who is a very good
NH

and experienced analyst reckons 185p a share
NH

is OK
NH

Yesterday, news emerged that Laird had attracted a conditional 185p per share cash approach from Cooper Industries and the shares rose by 50p to 188p. The offer has not been recommended by Laird’s board and Cooper has not made a hostile offer to Laird’s shareholders.
NH

In our view, Laird’s shareholders would probably be very happy to accept an offer at around this price. Although the valuation multiples are not very demanding, even after yesterday’s rise, that can be explained by Laird’s poor track record. A manufacturing supplier of components and assemblies for various wireless and electronic applications, Laird seems to be for ever in the throes of changing fashions and requirements from its customers, needing major investment for new opportunities on the one hand and assets write-offs on the other as the group exits areas that are in decline. In our view, and in complete contrast to Chloride, this is not a particularly attractive business to be in, even if the rest of the portfolio, after exiting Handset Antennas, is currently in a growth phase. An auction must be the best hope for achieving greater value.
NH

but
NH

David Larkham
NH

at Arden
NH

who has also been following this sector for a bit
NH

reckons it’s no way enough
NH

We see the Cooper Industries proposed 185p bid as interesting
but not compelling. Our conservative valuation for Laird on a 12
month view is 190p (still an undemanding PE of only 10x). Whilst
the indicative offer appears interesting at a 35% premium to the
undisturbed price, in our view it reflects the undervalued nature
of the company rather than a premium for control.
NH

The Cooper bid hardly looks compelling on a forward PE of 12.6x falling to
10.1x. After all Cooper is trading on a forward PE of 15.3x. EV/Ebitda
valuation discrepancy is even larger (7.2x v 10.2x). However, the shares
have been a laggard and this offers a liquidity event including an 85%
upside for those who bought in at the November 2009 rights issue. We
note the last UK quoted company acquired by Cooper was MTL in 2007 on
a forward PE of 22x falling to 19x.
Our view is that the Cooper bid reflects how undervalued the group was.
The upside from the ex-handset group should be capable of more
sustained growth and margin generating longer term value and rating for
those with medium term horizons. Management now need to demonstrate
that this is the case.
NH

Our price target pre the Cooper approach was 190p a share based on a PE
of 10x 2012 earnings. This is still a discount to higher quality electronics
and electricals groups (PE 13-14x). However, further evidence of secular
rather than recovery growth and potential for mid teen margins need to be
seen before further upside rating can be justified. The move towards
systems and end products and away from price sensitive components for
consumer products as highlighted by the Cattron and Klüver acquisitions
and handset closure suggests that the portfolio is moving in the right
direction.
NH

and in answer to Swedes question
NH

how much should Copper pay
NH

well
NH

they way lots of people are reading this
NH

goes as follows
NH

take 170p a share target price from house broker
NH

JP Morgan
NH

use that as a base
NH

look at yesterday’s rebuff statement from Laird
NH

not the words substantially overvalued
NH

which is code for we want a 30% premium on whatever is fair value
NH

and bang
NH

you get 220p
NH

that should do it
NH

well it should get management talking
NH

not sure if Cooper want to pay that however
BE

Hm.
BE

They could afford it.
BE

Though we had the usual stuff yesterday about the company taking a measured approach to M&A, etc etc.
BE

All the usual stuff from the CEO playbook.
BE

Oh – one last datapoint on valuation.
BE

From UBS
BE

The proposal translates to 1.0x 2011E EV/sales, 6.5x EV/EBITDA and 11.2x P/E. We believe the Commscope-Carlyle deal (Oct 2010) is a relevant recent benchmark, which we estimate was priced at 1.1x forward year EV/sales and c8x EV/EBITDA. For reference, at 8x 2011E EV/EBITDA, Laird would be worth c235p/share.
BE

So – not a thousand miles from where we are now.
NH

wasn’t the Cooper guy speaking
NH

at a Deutsche Bank conference yesterday
NH

leading question that
NH

because I know the answer
NH

and here it is
NH

LAIRD (LRD LN) / COOPER INDUSTRIES (CBE US) – Presenting at Deutsche’s Industrials & Basic Materials Conference yesterday, Cooper CFO, Dave Barta, says he can’t talk about Laird, just that “this is a business that overlaps in terms of fit with Bussmann”. On acquisitions in general, he says it “has always had a very disciplined approach certainly in the last decade around M&A” and “we remain very disciplined.” He adds that “we are looking at more deals now than we ever have in our history. We probably also are walking away from more deals than we ever have at any time in our history so there is a lot of activity going on.” (From the events desk at BTIG.) 

NH

there you go
NH

all up to speed on Laird I hope
12:17PM
NH

Right then
NH

anyone off to the races today?
NH

EmoticonEmoticon
BE

Class.
NH

not top hat
NH

required at Ascot
NH

which seems to have been invaded by the Chavs
BE

Like Yates Wine Lodge goes to the nags.
NH

EmoticonEmoticon
NH

talking of chavs
NH

and the low income demographic
NH

someone was asking about Dunelm
NH

and why they are lower
Dunelm Group PLC (DNLM:LSE): Last: 402.20, down 24.1 (-5.65%), High: 423.70, Low: 401.00, Volume: 185.47k
NH

all I can offer is this
NH

from Citi
NH

Getting tougher from here — As a high-quality, cash-generative business part-way
through a low-risk, high-return organic expansion programme, the fundamentals of
Dunelm are attractive, in our view. However, with industry headwinds driving downside
risk to the forecast agenda, we initiate coverage with a cautious stance and a
Hold/Medium Risk (2M) rating
NH

With self-help measures set to slow and cyclical benefits
likely to reverse, we are cautious on the sustainability of these returns. In particular,
expansion plans of scale competitors target 4% of the homewares market per annum.
We argue that competitive action is likely to lower returns for all industry participants.
Over the next 3 years we see a 100bp contraction in EBIT margins driving a 6% EBIT
CAGR. Our forecasts are c.5% below consensus in each forecast year
BE

(@Outlaw: by memory, the London expiry’s fixed at a random time during in a 20-minute window starting at 10:30am.)
BE

Ok – are we all done then?
NH

I think so
NH

nothing much interesting in the small cap world today
NH

that’s it
NH

let’s end with 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

Milky you are getting a ban
NH

only a little one
NH

because we rather like you
NH

and need the comments you generate
BE

Yup – it’s like having a talking parrot in the room. It may talk nonsense, but it’s diverting nonsense.
NH

EmoticonEmoticon
BE

As to the rest of you, thanks for your wit and wisdom both today and this week.
NH

yes
NH

thanks all
NH

cya next week
BE

(@anthrax: if only.)
NH

and now one paul murphy is back in the UK
Former FT Alphaville editor and founder of the site. Now in charge of something called FT Tilt.
NH

we might see if we can get him on the show
NH

I will keep you posted
NH

and please
NH

do try Cardiff’s new podcast
NH

it’s really rather good
BE

Excellent. Spelling standards will be in inverse correlation to scurrilous gossip.
BE

Until then, see you next week everyone.
NH

Monkey he is back forever
NH

He’s back in Greenwich
NH

back in the house
NH

in the office
NH

though sitting with those Tilting people
NH

I will Monkey
NH

welcome home party I think
NH

PM comes home
NH

bye
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