Markets Live transcript 20 Jun 2011

Posted by Neil Hume on Jun 20 11:03.

Markets Live chat transcript for the chat ending at 11:36 on 20 Jun 2011. Participants in this chat were: Neil Hume, FT bryce.elder

NH

Hola
NH

you ‘orrible markets rabble
NH

welcome to Markets Live
NH

a discussions of all things market
NH

and some things that are only loosely related
NH

Bryce is here
NH

and can you give me a moment
NH

while I turn the Alphaville TV
NH

on to the test match
BE

Oh good. Cricket.
BE

While Neil’s doing that, I’ll give the FTSE update
BE

We’re down 40 points
BE

At 5675
BE

Off the lows of the day
NH

(117- 3. Anderson bowling)
NH

yep
NH

we are off the lows
NH

not really sure why
NH

everything is on hold now
NH

ahead of the two Greek votes
NH

confidence vote tomorrow
NH

and the bailout vote
NH

on June 27th
NH

sorry
NH

28th
NH

and today’s main news is that the Eurogroup have said to Greece
NH

you can have the money
NH

if you agree to these new austerity measures
BE

Details?
NH

hang on
NH

will have to get the statement
NH

that came out in the early hours of the morning
NH

these are the most important bits
NH

However, given the difficult financing circumstances, Greece is unlikely to regain private market access by early 2012. Ministers agreed that the required additional funding will be financed through both official and private sources and welcome the pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece.
NH

On these conditions, Ministers decided to define by early July the main parameters of a clear new financing strategy.Ministers call on all political parties in Greece to support the programme’s main objectives and key policy measures to ensure a rigorous and expeditious implementation. Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success.

NH

there you go
NH

so basically
NH

Friday’s rally was premature
NH

and not much has changed
NH

will the Greeks pass this or not?
BE

Um ……. possibly.
BE

I wouldn’t be a bit surprised to see the schedule pushed back again.
NH

quite
NH

anyway a quick bit of comment on Greece
NH

and lets’s push on
NH

I detect a certain ennui on the part of the rabble
NH

with things Greek
NH

here’s the ever readable Gary Jenkins at Evo Securities
NH

On Friday it appeared that Germany had been talking loudly and carrying a small stick as they backed down on their demand for burden sharing by bond holders, agreeing to a voluntary roll over of debt rather than maturity extensions. Following a meeting with French President Sarkozy on Friday Chancellor Angela Merkel said “What’s crucial is the participation of the private sector on a voluntary basis, and the Vienna Initiative is a good foundation, and I think we can put something forward on this basis”.
NH

The Eurogroup statement stated that finance ministers agreed to the ‘pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece’. It remains a bit of a mystery why anyone would voluntarily agree to roll over the debt without any credit enhancements and we therefore find it questionable whether a ‘substantial reduction’ can be achieved this way.
NH

Euro area finance ministers delayed the approval of the next tranche of funds for Greece when meeting last night. They want to see Greece approve the requested budget measures and privatisation plans before committing further funds. We expect a temporary agreement could be reached to provide funds if the Greek government fails to win tomorrow’s confidence vote or if it does not get parliamentary support for the budget measures (vote due 28th June). The alternative is a very messy default. One wonders whether the EU has done any work on increasing the size of the EFSF / ESM and announcing that it will be used to support Spain, Ireland and Portugal plus the European banking sector if required in the event that Greece does default.
NH

Greek Prime Minister Papandreou’s new government was announced on Friday with the finance ministry now headed by Evangelos Venizelos. A vote of confidence in the government has been called and the first session of the debate took place yesterday with the final session scheduled for tomorrow 6pm (Greek time).
NH

of course
NH

Greece is not the only thing happening this week
NH

we also have
NH

FOMC rate decision on Wednesday followed by Bernanke’s press conference key
NH

a sort of end of QE2 Party
NH

I was pondering whether it’s worth another ML for that
NH

the last one went well
NH

and was quite fun
NH

especially that auto text system
NH

we found for the Q&A
NH

if there’s interest from the rabble
NH

we’ll do it
11:12AM
NH

Right before we look at stocks a few questions to answer
NH

Bryce
NH

what’s Milky’s limit?
BE

He was on ten an hour
BE

Whichy should be plenty
NH

oh dear
NH

he’s used up half in the first 12 minutes
NH

sorry make that six
NH

and he’s not even mentioned Lloyds
NH

yet
BE

Well, limits are off for the moment.
BE

And, providing he doesn’t do anything silly, they’ll stay that way.
BE

So, let’s be honest, they won’t stay that way.
NH

as for Telecom Plus – Nately not looked at that for a while. But when we have, we’ve not liked it
BE

Type Telecom Plus into Google and see what it autosuggest autosuggests. I’ll say no more.
NH

hang on
NH

I want to try that
NH

I think I know the answer
BE

Anyway, let’s push on.
BE

Risers or fallers?
NH

(Milky they weren’t. that was the London listed stub that was briefly off 11%)
NH

fallers of course
NH

where shall we start
NH

I know
NH

welding
NH

I love a bit of welding
Charter International Plc (CHTR:LSE): Last: 586.50, down 131.5 (-18.31%), High: 613.00, Low: 571.50, Volume: 2.35m
NH

yes
NH

big profits warning from Charter today
NH

they are blaming there welding business ESAB
NH

Europe has increasingly suffered from slowing economic trends against the background of Eurozone debt crises, austerity measures, and uncertainty with the result that conditions in welding markets have deteriorated.Rising input costs, coupled with a more competitive environment have meant that the strong performance ESAB experienced in March has faded during the last two months. Against this background, ESAB’s trading performance for the first half is now expected to be in line with the second half of 2010. Although consumables volume growth has been strong, this has been driven by solid wire sales particularly to the automotive sector, whilst electrode volumes in Europe are down on last year. Other markets have performed better, with strong performances in Russia, Middle East and Asia. South America and India are a little behind last year in trading. Standard Equipment has shown a strong revival, with sales up 23% globally, albeit with cost pressures on margin. Cutting and Automation have recovered from the losses incurred in the first half of 2010, although trading has been weaker than expected.

NH

basically blaming events outside their control
NH

and that’s sparked a sell off
NH

in the rest of the engineering sector
Bodycote PLC (BOY:LSE): Last: 330.40, down 21.7 (-6.16%), High: 346.00, Low: 327.40, Volume: 234.90k
Cookson Group PLC (CKSN:LSE): Last: 619.50, down 35.5 (-5.42%), High: 641.50, Low: 612.00, Volume: 2.17m
NH

on the basis
NH

that the lower quality end of the industrials always
NH

warn first
NH

however,
NH

analysts aren’t buying this
NH

they reckon the reason Charter has warned
NH

is they hiked prices to aggressively
NH

rivals
NH

didn’t and they got all the business
NH

for example
NH

here’s what one analyst had to say
NH

Charter (not covered) – a profit warning out of ESAB. Europe weak with rising costs and a more competitive environment. It does appear to us that these are issues within ESAB rather than European trading as every other company we see comments on the continuing strength in the region – Bodycote is a good example. We understand that downgrades are likely to be in the 13% to 15% region and come in at around 65p. As already said, we think this is a Charter issue rather than one having read across for the peer group. The message out of Lincoln Electric is very different – in its Q1 numbers it delivered $1.00 against consensus of 89c.
BE

Hm.
BE

So Charter’s excuses about costs and deterioration over the last few weeks may not be the portent they appear.
BE

Interesting.
BE

For welding, that is.
NH

as interesting as it gets
NH

anyway
NH

the stock has been hammered whatever the real reason for the PW
NH

and
NH

there are some pretty grim downgrades
NH

coming through
NH

here’s Citi
NH

Cost Cutting Should Help 2012 – A £30m cost saving program is being initiated with a 12-18 month timeline for delivery. To this end a £25m exceptional will be booked this year. The cost savings should reduce the 2012 forecast impact.
Howden Better – The Howden business appears to be trading c10% ahead of our expectations driven by the energy and oil & gas sectors. Further progress is expected looking out into 2H11.
Consensus Downgrades likely 10-15% in 2011E – Management commentary suggests an EBITA of c£150m and in turn this implies EPS in the 65-70p range for the year which versus consensus EPS of 76p (according to Reuters) suggests a 10-15% downgrade.
Share Price Weakness is No Surprise, P/E not that High – The stock is off significantly this morning and given the disappointing nature of today’s announcement this is not that surprising. However, an implied consensus P/E of c9x is not that aggressive versus our sector coverage capturing much of the weakness.
NH

Howden
NH

is that compressed air?
NH

Charter really is the most exciting of businesses
BE

Yup – Howden Compressors.
NH

wow
NH

so that bits OK
NH

welding isn’t
BE

So – that’s our annual mention of the welding industry out of the way.
BE

Where now?
NH

right
NH

a reason for the rally in the market
11:25AM
NH

apparently this just flashed up
NH

We then appeared to have settled into a tight 1.4200/20 range until Bloomberg flashed up the following headline: *GREECE’S OPPOSITION AGREED ON UNITY GOVT
NH

This caused an initial spike up to 1.4240 as short-term positions got squeezed.
NH

but apparent;y it’s rubbish
NH

The headline was somewhat misleading. “Last word on this headline kerfuffle: The comments come from an interview with Greek opposition (Nea Dimokratia) Economy Spokesman Mitarachi. He does not state that any agreement has been reached with the government, rather he sticks to the usual opposition talking points,” says G10 . FX Strategist Todd Elmer.
NH

The headline on opposition agreeing to unity government appears to come from a comment that such an agreement was being discussed but ultimately was not reached,” he adds.
NH

there you go
NH

rubbish
NH

but we are going to get more and more of this
BE

FTSE update – the rally continues.
BE

Now down 34 points
BE

At 5861
BE

And — if only to rejoin the left to the right — what’s this about an RBS placing?
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 39.45, down 0.84 (-2.08%), High: 39.53, Low: 38.90, Volume: 33.49m
NH

yes
NH

RBS placing RBS
NH

for RBS staff
NH

346m shares
NH

that’s why they were rubbish at the open
NH

trying to get term sheet thingy now
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 39.44, down 0.85 (-2.11%), High: 39.53, Low: 38.90, Volume: 33.52m
NH

probably explains
NH

why the other banks were worse first off
Lloyds Banking Group plc (LLOY:LSE): Last: 47.32, down 1.07 (-2.21%), High: 47.86, Low: 46.75, Volume: 46.74m
Barclays PLC (BARC:LSE): Last: 251.85, down 5.35 (-2.08%), High: 255.20, Low: 205.63, Volume: 12.19m
NH

I wonder what 346m shares in RBS equates to?
NH

1 per cent of the bank?
BE

Less, I’d assume.
BE

58bn in issue.
BE

Though free float’s a bit tighter, obviously.
NH

right
NH

here’s the terms of that
NH

I think it was all done at 39p
NH

RBS is acting as a sole bookrunner on the below transaction:Underlying: The Royal Bank of Scotland (“RBS”)
Selling shareholders: Computershare on behalf of RBS employees under deferred compensation arrangements
Listing: London Stock Exchange
Transaction structure: Accelerated Bookbuild of c. 354.6m secondary shares
Selling commission: No secondary commissions
Stamp duty is payable

Use of proceeds: There are no proceeds to RBS

Selling restrictions: Private placement exemption to qualified institutional investors in the US

Timetable: June 20th – Deal announced, books open
June 23rd – Settlement

NH

deferred compensation arrangements
NH

evil bankers being allowed to sell
NH

after holding shares for a few years
NH

is that what it means
NH

or is this branch staff?
BE

Guess so.
NH

hang on a moment
NH

just spotted one Paul Murphy
Former FT Alphaville editor and founder of the site. Now in charge of something called FT Tilt.
NH

in the office
NH

back at No1 Southwark Bridge
BE

Striding purposefully towards lunch.
NH

EmoticonEmoticon
BE

Good to see him back on these shores. Will try and get him to do a session some time soon.
NH

Wednesday could be an idea
BE

Ace.
NH

I can’t make the session
NH

and will be working at home
NH

let’s see if he fancies dropping by
BE

Right – anyway, let’s return to the market, shall we?
NH

in other bank news
NH

this just popped up
NH

BN 06/20 10:32 PNC Agrees to Buy RBC Bank (USA) for $3.45 Billion
BN 06/20 10:31 *PNC SEES DEAL IS $112M DISCOUNT TO TANGIBLE BOOK VALUE :P NC US
BN 06/20 10:31 *PNC SEES FUNDING DEAL WTIH CASH, DEBT ISSUANCE, PFD STK OFFER
BN 06/20 10:31 *PNC TO BUY RBC BANK (USA) FROM ROYAL BANK FOR $3.45 BLN :P NC US
BN 06/20 10:31 *PNC SAYS DEAL ADDS AOBUT $19B DEPOSITS, $16B LOANS :P NC US
NH

it will give the Canadians more money to spend
NH

possibly in the UK
NH

and
NH

Lloyds
NH

lots of comments on Lloyds in the Sunday papers
NH

the big strategy review is next week
NH

and everyone is trying to get a line on it
NH

the Telegraph reckon
NH

we will hear news of more cost cutting
NH

and that Halifax will be its lead brand
NH

which might explain
NH

why those incredibly annoying adverts are still on TV
NH

the radio station ones
BE

There’s a magnificent dubstep rework of the Halifax adverts doing the rounds.
BE

Will dig it out in a bit.
NH

which one is that
NH

the one where the handle falls off the mug (very funny that)
NH

or the Vanilla Ice car keys one?
BE

All in combination. You need sound.
NH

actually good point
NH

what happened to Howard?
NH

was he credit crunched by Eric Daniels?
BE

No record after 2008
NH

MIA
BE

Well, he was moved into PR.
BE

Which is the same thing really.
BE

Anyway, returning to Lloyds.
NH

(MacRus – no. North of London)
NH

yes
NH

I have a bit of comment
NH

on Lloyds
NH

and what Antonio will say
NH

next week
NH

More speculation as Lloyds strategy day draws near
Over the weekend there was what looks like a well informed story in the Sunday
Telegraph about Lloyds new plans. Specifically the story highlighted that on the
30th June Lloyds will announce plans to:
NH

• • Push the Halifax to become the group’s prime retail brand at the same
time as retaining the Lloyds and Bank of Scotland branch network;
NH

• Set a long-term cost:income ratio target as low as 45pc;
NH

• Provide a firm commitment to retaining Scottish Widows and Scottish
Widows investment partnership, its fund management arm;
NH

• Detail an efficiency drive expected to yield as much as £2bn in costs
which will see the disappearance of thousands of jobs.
NH

and we could add
NH

talk down Lloyds again
NH

and warn of lots of bad news
NH

but I guess that’s obvious by now
NH

In our view, there is a lot of negative speculation around the Lloyds strategy day.
People are expecting significant write-downs as the new CEO boosted
provisioning in Ireland, UK CRE and UK mortgages. This combined with broader
expectations around the sale of Widows, project Verde separation costs and a
further restructuring charge have hit the confidence in the book value and sent
the shares spiralling to 48p.
NH

In our recent report “Back to basics” (8 June 2011), we set out our expectations
for cost cuts at £1bn and a significant stress test designed to give some
confidence in trough book value. The £1bn of cost cuts was consistent with the
results from investors polled at the start of June. With £1bn of cost savings we
estimate that Lloyds could still generate 9p of EPS by 2013 (8p ex 800 branches),
but would be left with a cost income ratio of 47%. If we increase the cost saves to
£2bn then this would boost the headline EPS to 10.2p and give a cost income
ratio of 42.5%.
NH

In our view investors are generally accepting that the Lloyds franchise is capable
of generating an ROE > COE, justifying a multiple above book value. The
problem is that at the moment there is no confidence in the book value. If
management can stand up at the end of June, not imply big hits to book then the
shares should recover quickly to 56p (the 1Q11 T/NAV). If management set out a
credible plan to improve returns then (as in 2010) the shares should be capable
of justifying a multiple above book value.
With the market underweight and expectations extremely low, we reiterate our
stance that people are taking a risk being underweight ahead of the investor day
and with the stock trading at 1x our bear case EPS of 48p, we reiterate buy.
NH

chew on that Milky
Lloyds Banking Group plc (LLOY:LSE): Last: 47.18, down 1.21 (-2.50%), High: 47.86, Low: 46.75, Volume: 47.68m
11:41AM
NH

OK then
NH

on to the day’s other big faller
Supergroup PLC (SGP:LSE): Last: 831.00, down 69 (-7.67%), High: 900.00, Low: 810.00, Volume: 328.00k
BE

Right then.
BE

And he hasn’t even started speaking.
NH

nope
NH

chairman first man up at midday
NH

then some lunch
NH

then the CEO
NH

another PR disaster
NH

big strategy day
NH

bring all the analysts down to the HQ
NH

but before all that
NH

issue a statement that scares everyone
BE

Yeah – difficult to make much of today’s statement.
BE

The Group’s strategy remains on track, and trading across the Group as a whole is in line with management’s expectations. Within that, retail growth remains approximately at the same level as in Q4 but has seen a marked improvement over the last three weeks and is complemented by strong wholesale growth.
BE

So – still quite rubbish but not quite so rubbish lately.
BE

I’m not sure what that means.
NH

nothing
NH

it should have bounced back before now
NH

and in anycase
NH

the worrying thing is store openings
NH

they have to open loads of them in the second half of the year
NH

to meet targets
NH

so
NH

6-10 stores due to open in H1
NH

but consensus forecasts are based on
NH

20-25 new stores p.a.
NH

so there’s a lot to do
NH

and the above
NH

may or may not include
NH

the massive store on Regent Street
NH

which they have confirmed the lease on today
BE

And it seems to have lost a floor.
BE

Could’ve sworn it was five floors.
BE

Now it’s four, according to today’s statement.
NH

We are delighted to announce that we have exchanged contracts, subject to landlord’s consent, for an iconic site in Regent Street which will become our flagship London Superdry store.This part of Regent Street is set to fundamentally change with the opening of Hollister and Burberry flagships and the addition of a new Abercrombie & Fitch store, helping to transform a previously strong pitch in the heart of the West End into a major fashion location.

The store will comprise 59,000 gross sq ft (of which 38,000 sq ft is trading space over four floors), which will be used as an international showpiece and our London showroom. Our aim is to open towards the end of the financial year, although we are planning a phased approach for the site as a whole.

NH

(Milky – Merrill. who else is that positive on Lloyds?)
NH

yes
NH

a floor seems to be missing
NH

and only
NH

38,000 sq ft
NH

to fill with their range
NH

i can’t believe the range is big enough for that
NH

so what will they fill the store with?
NH

a barbers?
NH

bar?
NH

some male pampering spa
NH

(Milky – OFF)
BE

I’m also baffled as to this phrase “London showroom”
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.
BE

Do clothes need a showroom?
BE

Showrooms are where agree terms on the rustproofing and mag wheels. I just do not get this.
BE

So whould we put some comment up?
NH

yeah
NH

bull and bear I guess
NH

and make the point
NH

that when Dunkerton starts speaking this afternoon
NH

the stock could do anything
NH

right
NH

here’sEmoticon
NH

from Wayne Brown at Collins Stewart
NH

The update does not re-assure on the timing of openings
The company has also confirmed that the opening programme for FY 2012E
will be H2 weighted with only 6-10 stores due to open in H1 (3 in Q1) with a
significant number of new stores to open before Christmas . One of our
chief concerns is that consensus forecasts are predicated on a faultless
execution of an aggressive development programme of 20-25 new stores
p.a. This statement provides confidence that all is-on track though H2
weighted, in-line with our below consensus expectations. With increased
variability in lead times, and differences in expected sales contributions from
site to site, the shares are likely to be volatile between quarterly updates
NH

The group does not disclose LFL sales and the lack of visibility over
underlying retail momentum is unhelpful. The Regent Street flagship, which
is due to open towards the end of the financial year, will cover 59k gross sq
foot of which only 64% is trading space. The cost as well as the premium
attached to this site has not been disclosed but we believe is material. If
Supergroup manage to achieve their growth targets then the shares look
cheap, but the current rating sets expectations high. The anticipated opening
of 50 international franchised stores versus 44 in FY 2011 is encouraging.
Whilst the shares are likely to react positively today there is no substantial
new news to change our overall investment thesis. One should also remain
mindful that directors , who hold 65% of the shares, lock-ups expire in
September
NH

and here’s Supergroup apologist Nick Bubb
NH

who gets to sit next to Dunkerton at lunch
NH

(actually I made that up)
NH

SuperGroup (Buy): The bears have had a field day in recent weeks, with rumours of poor trading helping to drive down the SuperGroup share price to absurdly low levels. The short position is about 9% of the free float, but that can be quickly reversed and, in theory, if our current year PBT forecast is intact, the shares could double as quickly as they have halved. The message from the company today, in the detailed statement put out ahead of today’s Analysts Day at HQ in Cheltenham (which starts at 12 o’clock), is that things are on track in fact and they sound excited about prospects
NH

The key news is that they have seen a “marked improvement” in UK Retail trading in the last three weeks and though the implication is that May was a weak month, the strong June trading is put down to the excellence of the new summer ranges, so the presentation today by James Holder the Brand Director will probably be the highlight of the analysts trip (although the company is also keen to trumpet its Overseas expansion). Our current year £76m PBT forecast (y/e April) may need to be revised down slightly, after the finals on 13 July, to allow for the pre-opening costs of the big new Regent Street flagship for Superdry, but it is broadly in the right area and a P/E of about 13x is much too low for a company growing at over 40% a year. The shares closed at 900p on Friday, but so far today have fallen back towards 850p…We have our 1725p price target under review, for obvious reasons, but it may not actually be that far away from fair value for the stock, after today’s very reassuring news, so we reiterate our Strong Buy on SGP.
NH

there we go
NH

it will be really interesting to see how things go this afternoon
NH

I don’t think Supergroup really know what they are doing
NH

when it comes to communicating with the market
11:53AM
NH

Where now?
BE

Power generators?
BE

That’s certain to enliven the ROTR.
BE

Who seem to have drifted off already.
Aggreko PLC (AGK:LSE): Last: 1,855, down 56 (-2.93%), High: 1,901, Low: 1,837, Volume: 373.50k
NH

not aggreko
NH

I think Charter is more interesting than temporary power supply
BE

You may well be right.
BE

So let’s jump through this quite quicky.
NH

pls
BE

So – trading remains pretty good.
BE

But dollar weakness isn’t.
NH

let me guess
NH

no upgrades then
NH

this stock massively valued
BE

Bingo.
NH

so a bit of profit taking kicks in
BE

Exactly.
BE

You can’t hold guidance when your PE’s in the 20s.
BE

Numis provides the overview.
BE

In today’s update management maintained guidance for the year with an underlying
trading improvement in Q2 offset by a weaker $. As such we have left our forecasts
unchanged. Although encouraged by the performance of the Local business where
revenues increased 17%, management re-iterated its dependency on the peak
summer season. The AIPP business continues to make strong progress with
underlying revenues +22% and a positive outlook leading to increased cap-ex. The
group now expects to spend £420m this year, which is £100m more than indicated
some 3 months ago. This underpins profit expectations for 2012 and beyond. While
we are great admirers of the management and business model we are conscious of
value. With the shares trading on an EV/EBITA of c.17x the stock is priced for high
growth and high returns. An EV/IC of c.5x suggests a post-tax ROIC of 16% and 6%
growth forever.
NH

(@Big John – Yellow card)
NH

please no more
NH

we must be done with this
BE

We are.
11:58AM
NH

Right
NH

before we get back to stocks
NH

a quick trip down memory lane
NH

it was 20-years ago today…
NH

Finally, 20-years ago the then British Chancellor John Major proposed a new European currency to circulate alongside national currencies.
NH

Major’s plan was a response to the proposal for a single currency and European bank. “The Conservative Government is sceptical about full monetary union and regards this new proposal as a way of putting forward a genuine alternative,” is how the BBC remembers it.
NH

seems apt
NH

given the Der Spiegel obit on the euro today
12:00PM
NH

Time for something bullish
NH

a riser
Inmarsat PLC (ISAT:LSE): Last: 586.50, up 22 (+3.90%), High: 599.00, Low: 578.00, Volume: 987.54k
NH

Bryce can you explain pls
BE

Curse of the market report, innit.
NH

what, write it down
NH

it goes up the next day
BE

Exactly. Wrote on Friday about its problems with GPS
BE

And, at about midnight, Lightsquared reportedly signs a network deal with Sprint
NH

I see
NH

Lightsquared being Philip Falcone’s plan to build a nation wide mobile phone network in the USA
NH

using the existing system
NH

and satellite broadband
BE

Yeah – and there remains two bits of news here.
NH

(@Shovel – nope. Had people asking about that today and we have no idea)
NH

(Asking around though)
BE

The Sprint tie-up
BE

And the fact that the network seems to monkey around with military positioning systems.
NH

that’s not good
BE

So, while the former news is good news for the actual roll out of the network
BE

the latter really needs to be resolved before it can operate.
NH

hmm
NH

more regulatory delays then
BE

Possibly — Bloomberg did a big report on Friday
BE

citing a federal public meeting
BE

That said Lightspeed would broadcast into space
BE

And screw up all sorts of mission critical GPS
BE

All we know is that Lightspeed’s been given another fortnight to get its data in order
BE

To submit to the Feds
NH

I see
BE

Anyway, that was Friday’s news
NH

(@Mextor – where are you going?)
BE

Let’s have a bit more on this Sprint deal shall we?
BE

JP Morgan’s quite good on ISAT.
BE

According to Bloomberg, Sprint and Lightsquared have agreed on a joint
network rollout deal stretching over 15 years worth US$20bn. We see this
as an important step for L2 since the company gains a large new customer
and shows the trust Sprint has in L2 that funding for the network is
available and that the GPS interference issues will be solved. We see the
announcement as positive for Inmarsat since it increases the probability
that the annual lease payments of US$115m are sustainable longer term.
We believe the L2 business could be worth 2GBP per Inmarsat share if the
spectrum lease payments are sustainable.
NH

Sprint are in something of a challenged position, no?
BE

The GPS interference issues are still unsolved, but Sprint’s agreement
adds further weight that a solution will be found and shows the
confidence Sprint has that this issue gets solved. L2 is currently running
several tests on the interference issue and has been granted an extension
of the filing period until 1 July 2011 to provide the results to the FCC.
The tests so far by other parties indicate that the GPS signals are
interfering with L2 frequency signals. We understand that the GPS
terminals are squatting on the Lightsquared frequencies, but the GPS
system is used by military and security services as well as positioning
systems and therefore to widely used to ignore as an issue. This is an
issue that has to be solved if the network were to allowed to operate. So
far, the FCC has granted L2 a waiver to build the network before the
interference issues are solved, but not to operate it.
NH

after the T-Mobile/AT&T deal
BE

Yeah – Sprint look subscale.
BE

A distant third in the US, I think.
BE

So they seem to be hammering away at 4G as some kind of solution
BE

Build the fastest network rather than the biggest.
BE

Hence the Lightsquared deal, I guess.
NH

OK
12:10PM
NH

Time for some fantasy M&A?
BE

Is there any other type?
NH

at the moment, no?
NH

every rumoured deal fails to materialise
NH

and the companies no one ever talks about
Laird PLC (LRD:LSE): Last: 199.50, up 2.2 (+1.12%), High: 200.00, Low: 194.70, Volume: 1.12m
NH

get bid for
Avis Europe PLC (AVE:LSE): Last: 310.70, up 0.2 (+0.06%), High: 313.40, Low: 310.50, Volume: 7.24k
NH

so
NH

here’s the latest idea
Betfair Group PLC (BET:LSE): Last: 826.00, down 24 (-2.82%), High: 845.00, Low: 825.00, Volume: 63.40k
NH

should merge with
Sportingbet PLC (SBT:LSE): Last: 41.00, down 1.25 (-2.96%), High: 42.50, Low: 41.00, Volume: 1.21m
NH

to create
NH

Fairly Sporting
BE

Ouch.
BE

Also, that’s a rubbish idea.
NH

and name
BE

Betfair’s an exchange and Sportingbet’s a broker. It’s like saying Winterfloods should merge with LSE.
NH

one runs a betting exchange, one if a fixed odds bookie
BE

Exactly.
BE

There ARE some synergies. But there really shouldn’t be.
BE

So who’s idea’s this?
NH

Numis
NH

In this note we consider the merger of Betfair and Sportingbet to create what we
have whimsically, but tentatively, christened “Fairly Sporting”. Having considered
the strategic challenges facing both businesses, we believe that a merger would
create a better business than either company on its own, and more quickly than
could be delivered by the companies’ own strategic plans.
NH

Betfair has a unique mechanism for pricing sporting odds, a cash pile and a relatively
low risk geographic business profile. We believe it needs a way to integrate fixed-odds
bets into its product range in order to match the depth of product on offer by
bookmakers and to give it a product with which to enter markets where new regulation
blocks betting exchanges.
NH

personally I can’t see the guys at Betfair
NH

buying into this one
NH

but still
NH

here’s the rest of the note
NH

Betfair, by merging with Sportingbet, would in one step, have access to the first class
fixed-odds bookmaking product which it needs to round out its product depth and avoid
a lengthy, expensive and risky process of building it internally.
NH

that said there’s one benefit
NH

Sportingbet does have a large business in Spain and Greece
NH

Sportingbet is a leading fixed-odds bookmaker. It is already a market leader in Spain
and Greece. However regulatory risks in those countries, and in Turkey which is the
largest single profit contributor, weigh heavily on the stockmarket valuation. As part of
Fairly Sporting, Sportingbet would have the opportunity to use the betting exchange as
a risk management tool which would allow it to confront competitive pressure on price
by always being able to offer market-leading odds at low risk to itself.
NH

The acquisition of Sportingbet by Betfair at 60p per share (a 47% premium) in a mixture
of cash and shares would result in a 35% uplift in FY13E EPS for Betfair shareholders.
We believe that Fairly Sporting shareholders would have a fairly sporting chance of
making money from a re-rating. Valuing Fairly Sporting’s pro-forma FY12E numbers
on an EV/EBITDA multiple of 9x results in a per share valuation of 1,382p; a P/E
multiple of 13x, results in a per share valuation of 1,311p.
BE

Does Betfair want a fixed odds platform?
BE

It’s never mentioned.
BE

There’s no reason I can see why it should.
NH

(wicket – Swan. LBW, Sri Lanka 185-4)
BE

The costs saved by the merger would be … what …. head office maybe?
BE

Nah – not buying this at all.
NH

don’t shoot the messenger
NH

I’m just bringing you some fantasy M&A
NH

in the absence of any 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.
NH

today
NH

right
NH

we need to push on
NH

another possible deal
Premier Foods PLC (PFD:LSE): Last: 26.16, down 0.95 (-3.50%), High: 27.08, Low: 26.00, Volume: 2.50m
NH

apparently they might be about to sell another business
NH

which leaves me wondering
NH

what exactly will be left
NH

anyway
NH

here’s City on tis
NH

Sharwood’s sale? – The Mail on Sunday ran an article over the weekend suggesting the privately-owned Veetee Group is preparing a bid for Sharwood’s. We note that the two most recent disposals that were picked up by the press, Quorn and the Canning business, resulted in Premier Foods issuing a formal statement in the wake of the press speculation which confirmed talks were occurring. As yet, there has been no statement from Premier Foods, though we acknowledge this does not preclude the possibility of a bid being prepared. We also note that Sharwood’s is a ‘Drive’ brand for Premier Foods, whilst so far disposals have concentrated on less core parts of the business.Potential value – Premier Foods disclosed Sharwood’s sales as £65m in 2010 and £62m in 2009. We would therefore expect a sale value in the order of c£100-120m for the brand, based on historical sector multiples for local brands. Given current interest rates, we would expect a potential disposal to be dilutive to earnings, as has been the case for both Quorn and the Canning business, and on these metrics we would expect dilution to be low- to mid-single digit.

NH

Deleveraging – We currently forecast Premier Foods’ average net debt to be just over £1bn for 2011. A potential disposal of Sharwood’s, therefore, would help bring this down. Importantly, it would also speed up Premier Foods’ ability to reach its self-imposed target of 3.25x average net debt/EBITDA.
Stock still looks cheap – The shares have been weak in the wake of the Investor Seminar in mid May as there has been no immediate catalyst for the stock. We expect H1 results on 5th August to refocus attention on the stock. Any further disposals made should be a positive catalyst – Premier Foods does not have the luxury of being able to accept a price that would be detrimental to its net debt/EBITDA situation. Despite being EPS dilutive, therefore, we would expect any disposal to be taken as positive for the deleveraging story, as was the case for Quorn and the Canning business. We retain our Buy rating and 40p price target.
12:18PM
NH

Right
NH

quick bit of HPC 2011
NH

which seems to have bypassed the London area completely
NH

By Scott Hamilton
June 20 (Bloomberg) — London home sellers raised asking
prices to a record in June as demand from overseas buyers for
luxury properties in the capital’s center began to “spill
over” into some suburbs, Rightmove Plc said.
Average prices in London jumped 1.8 percent from May to
438,622 pounds ($708,680), the London-based operator of the
U.K.’s biggest property website said in a report today.
Nationally, values increased 0.6 percent, according to
Rightmove, which added it doesn’t expect gains to be sustained.
NH

While Britain’s property market is struggling to build
momentum as banks limit lending and budget cuts undermine
confidence, the exception is London where foreign buyers are
seeking homes in areas such as Kensington and Chelsea. Rightmove
said a lack of mortgages and a seasonal slowdown means national
values will probably fall about 7 percent in the second half
after an 8.1 percent gain in the first six months.
NH

which brings us
NH

to the Flowers plan mentioned by Ando
NH

mental
NH

and an ex-FSA boss involved with it as well
BE

Queen of the quangos, no less.
NH

Sir Callum McCarthy, the former chairman of the City regulator, is working on plans for a revolutionary mortgage business that he claims could kickstart the British housing market.The complex scheme, backed by the controversial American private equity firm JC Flowers, would see savers frustrated by low interest rates bankroll first-time buyers struggling to get on the housing ladder.

Castle Trust would offer homebuyers a 20% deposit to buy a house in exchange for 40% of any profits made on the eventual sale. It would also share in any losses if house prices fall.

NH

The cash to put up the deposits would come from bonds sold to retail investors, whose returns would be dictated by the performance of the Halifax house price index. The complex business model is believed to be unprecedented. McCarthy has yet to gain approval from the Financial Services Authority for the project, although it would not require a full banking licence.
BE

EmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticon
NH

there are many many levels
NH

on which this is not a good idea
BE

It’s not my place to give investment advice, but seriously ………
BE

EmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticonEmoticon
NH

and look at the people behind it
NH

Other non-executives include former agriculture minister John Gummer and Dame Deirdre Hutton, an HM Treasury director and ex-deputy chair of the FSA. The plan is yet to receive FSA approval.
NH

was this idea knocked up over lunch
NH

Flowers and Callum trying to come up with ways to get the housing market moving
BE

John Gummer. Best remembered for feeding his daughter a hamburger during the BSE panic.
BE

Now he’s doing the equivalent with first-time-buyer mortgages.
BE

This is terrible.
NH

OK
NH

one more housing data point
NH

CML numbers are out
NH

here’s Howard Archer with a break down
NH

The Council of Mortgage Lenders reported that gross mortgage lending improved modestly in May, having been held back in April by the later Easter this year and by the extra day’s bank holiday resulting from the Royal Wedding.Specifically, gross mortgage lending climbed to £11.3 billion in May after dipping to £9.8 billion in April from £11.4 billion in March. Even so, it was still below the March level and up only 1.2% from the May 2010 level. Furthermore, the CML reported that “Despite a modest pick-up in overall lending activity during May, lending for house purchase is running below year earlier levels.”

NH

Ongoing sluggish housing market activity underpins our belief that house prices will end up declining by some 10% overall by mid-2012 from their 2010 highs. This implies that they will fall by around 5-8% from current levels depending on which house price measure you take. Not only do economic fundamentals remain difficult overall for the housing market but the May survey from the RICS (Royal Institute of Chartered Surveyors) indicated that more houses are coming on to the market thereby diluting the possibility that a shortage of properties could provide significant support to house prices. And the RICS survey also showed that buyer enquires dipped in May.
NH

so there’s obviously a gap
NH

but I don’t think this idea is it
NH

(@Good bye Big John)
NH

ZAP
12:25PM
NH

Crikey is that the time
NH

we have a lunch at 12.45pm
NH

at this place
NH

so we better hurry
BE

Well, it may have improved.
BE

So – what’s moving?
Futura Medical PLC (FUM:LSE): Last: 85.75, up 1.75 (+2.08%), High: 92.75, Low: 85.75, Volume: 299.77k
BE

Ok then. Pun amnesty on the right.
NH

looks like their condom for occasional impotence will soon get the nod
BE

You have 3 minutes, ROTR. No more.
BE

Details then?
NH

hang on
NH

I will let
NH

Matrix explain as we are running out of time
NH

The relevant Notified Body within the EU has recommended CSD500 for review panel approval, which means that Futura Medical should finally be granted the CE mark within a few weeks. This is a major milestone for the business, and we are upgrading our target price to 181p from 137p and reiterating our BUY rating.
NH

• CSD500 has been recommended to the review panel for final regulatory approval and CE mark after Futura resolved all outstanding points in the regulatory dossier; a decision is expected within the next month.
• The CE mark will trigger a milestone payment from Futura’s licensing partner, Reckitt Benckiser, which has exclusive global rights, and enable CSD500 to be launched in 29 European territories and others that recognise the CE mark.
NH

• CSD500 is a latex-based condom, which contains a small amount of GTN (glyceryl trinitrate) on the inside of the condom, within the teat. The condom is being developed as a condom safety device to prevent condom slippage or breakage during intercourse and as a treatment for occasional impotence.
NH

• In August 2007, SSL and Futura published the results of a user study for CSD500, which demonstrated that the product could help men to maintain a full erection when wearing a condom. The study compared the use of CSD500 with a standard condom, and the results of the study were highly statistically significant. Secondary endpoints were also positive. Importantly, the study was a gold-standard, double blind, cross-over study and formed part of Futura’s regulatory package for Europe. In these clinical studies, the product was able to induce efficacy in users within five minutes and demonstrated efficacy in a high number of patients, at a similar level to the branded product, Viagra.
NH

sorry
NH

this is the dysfunction condom
BE

The Viagra condom, in tabloid terms.
NH

OK
NH

a few more things to mention
Independent Resources PLC (IRG:LSE): Last: 46.50, up 17.5 (+60.34%), High: 49.50, Low: , Volume: 230.28k
NH

is this report is confirmed
NH

it will be very very good news
NH

ndependent Resources plc (IRG:L) notes recent reports in the Italian media (Gazzetta di Modena, L’Informazione, Modena Qui, Resto del Carlino – all dated 18th June 2011) regarding its Rivara gas storage project in Northern Italy, for which it is currently seeking environmental approvals ahead of planned development. The DIRE wire service first broke the news by stating late on Friday that the Environmental Impact Assessment Commission (“VIA Commission”) a decision-making body of Italy’s Ministry of Environment had voted to allow the project to proceed.The Company would welcome this development but has not received any formal confirmation of this event nor any details as regards the VIA Commission’s deliberations or prescriptions, if any. The Company is seeking to clarify the media reports and will provide an update once it is in a position to do so.

NH

the sector watcher recently has been out and about
Ithaca Energy Inc (IAE:LSE): Last: 124.00, down 3.5 (-2.75%), High: 129.05, Low: 124.00, Volume: 71.44k
NH

Highly encouraging meeting with IAE management last week. The group generated $38m of pretax profits last year from production of 4,500 b/d of oil and revenues of $135m. Opex of $22/bbl should remain relatively constant for the next few years. Despite operational issues with Jacky field, IAE should still exit 2011 at around 10,000 b/d as the Athena field comes onstream in Q4 and the recent Cook acquisition impacts. Hence profits this year and next should see significant growth. With Stella due onstream in 2013, group production should hit 20,000 b/d, ie one of the biggest North Sea producers in the sector. The group has a current cash balance $200m and an unused debt facility of $140m, hence it is very well funded. Moreover it has tax losses of $216m and hence is unlikely to pay tax for a number of years, especially with the ongoing capex on the Stella/Athena fields. Current EV/2P reserves of $7/bbl looks ludicrously low – I’d say it should be on double that. Issues with an Electric Submersible Pump (ESP) on the Jacky field are likely to be rectified soon, which should provide a short-term boost to an oversold share price. I’d expect to see further add-on deals like the HESS/Cook acquisition, ie making highly profitable use of its tax losses. Very good management team, this has to be a core North Sea holding.
12:30PM
NH

and finally Bryce
NH

I have an offer
NH

you can’t refuse
BE

Go on then.
NH

We would love to invite someone from the FT to experience a helicopter flight over the City this Friday with internationally renowned FOREX trader and CEO of award winning trader coaching company, Knowledge to Action, Greg Secker.
NH

Flying Trader Greg is a trained helicopter pilot, and on Friday 24th June, he will be flying his chopper 10,000ft above London whilst trading live on the foreign exchange markets. Anyone can join in as Greg sends his trades down to the City beneath him, with all brokerage commissions going to children’s charities Barnardo’s and The Ubuntu Education Fund.
BE

Um …. no ta.
NH

We would be delighted if you or one of your colleagues could join him! The itinerary has been confirmed as below – but if these hours don’t suit, and you are only able to join Greg for the flight, I’m sure we could arrange something around that.3-4pm: Arrive at the trading floor in Fulham to watch the trades come in from Greg in his helicopter. Reps from the charities will also be there for interviews.

4pm: last trades come down, then you will be taken from trading floor to Chelsea Helipad

4.30pm: chance to go up for a 10 min flight with Greg. Then chance to interview Greg when he lands in Hotel Verta.

NH

are scared of heights?
NH

is that the reason?
BE

Greg Secker’s one of those people who runs the “YOU CAN EARN A MILLION TRADING LIKE ME” courses, isn’t he?
NH

yep
NH

like Kriel
NH

and the one who always writes in to complain
NH

forgot his name
BE

I’d rather not be stuck in a helecopter with someone who either believes in chartism, or is prepared to fake belief in it to sell it to innocent punters
BE

Trapped in some conference hall in Basingstoke
BE

And paying £999 for the privilege.
NH

yes
NH

it sounds awful
NH

and why does it need to go to 10,000 feet
NH

I’d want to be much lower
NH

to see the sites
BE

Wonder if you can see this site?
BE

Worth reading for any prospective clients of Mr Secker.
NH

right
NH

we’d better end this
NH

the FTSE 100
NH

has given up the rally
NH

down 50 points at 5,664
NH

Man the biggest faller
Man Group PLC (EMG:LSE): Last: 221.50, down 8.3 (-3.61%), High: 227.80, Low: 220.40, Volume: 3.25m
NH

followed by
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 39.05, down 1.24 (-3.08%), High: 39.67, Low: 38.90, Volume: 46.98m
NH

and Lloyds
Lloyds Banking Group plc (LLOY:LSE): Last: 46.89, down 1.5 (-3.11%), High: 47.86, Low: 46.75, Volume: 52.30m
NH

good day to you all
BE

Ta, and afternoon.

This entry was posted by Neil Hume on Monday, June 20th, 2011 at 11:03 and is filed under Uncategorized.

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