FT Alphaville " Markets Live transcript 15 May 2012 Markets Live chat transcript for the chat ending at 11:11 on 15 May 2012. But he's a prices free zone I'm here, but still crook unfortunately Reuters is garbage. It never works. What's the point in that company? We've got a positiv ereading on the Footsie but that's misleading to my mind Don't say that about reuters It's very nice that they're trying to buy Pulitzers, but how about making a pricing screen that just bloody works. I know im in a shrinking pool, but... Silver Fox - try google They now have live UK prices Which is exactly what I'm doing. They now have live prices SF - trust me - they are live now "An intermittent problem has occurred ..." Oh really, Reuters? I have a different definition of "intermittent ...." We underplayed Monty's comments on here yesterday We'd got lazy about kicking them Former Panmure bank seller So where's he turned up? And what's he selling? And RBS, ex-the best bits Amidst the speculation about a Greek exit and ensuing Eurozone chaos, at least one thing is clear: the ratings downgrades that are sweeping across Eurozone/UK banks will add to liquidity pressures. Remember, collateral requirements (and thus margin calls) are automatic/mechanistic, tied to the credit ratings of the counterparty and/or the underlying asset. Also remember that of the EUR 6 trillion European repo market, EUR 1 trillion is overnight repos, and another EUR 1 trillion is one-week repos, and the private repo markets only accept high-grade collateral - thus the plummeting yields on German bunds and UK gilts. Amongst UK banks, Barclays (BARC LN, £23bn, 190p, Sell) has the highest repo exposures, with £207bn in repo borrowing as at end-2011. RBS (RBS LN, £24bn, 22p, Sell) reported £87bn of repo borrowing as at end-1Q12. We think that in another repo crunch BARC and RBS would be the most exposed of the UK banks - see our January Grim Repo note for more details. Returning to the Eurozone theme, we haven't been able to dismiss the possibility of Germany withdrawing from the Euro. Taking our cue from Modern Monetary Theory, what about the following: Two of the main objections raised to a possible German withdrawal would be (1) the assumed appreciation of a new Deutschemark which would hurt exporters, and (2) the massive losses that would be borne by the banks. But what if - after withdrawing from the Euro - Germany printed, say, EUR3-400bn (or more correctly, its equivalent in new DEM) and handed it to its banks via some QE/LTRO mechanism in order to plug their holes? The inflationary impact would be limited because those new DEM would simply disappear into those banks (although the existing shareholders in those banks would face more than a wee bit of dilution), whilst the currency appreciation could be limited by the quantum of money-printing, keeping exporters happy. Not an implausible thought? Right, so he's updated the terminology but the opinion remains much the same. Wish I'd see that Grim Repo note Barclays PLC (BARC:LSE): Last: 186.00, down 3.8 (-2.00%), High: 193.05, Low: 184.74, Volume: 23.13m Lloyds Banking Group plc (LLOY:LSE): Last: 29.24, down 0.142 (-0.48%), High: 29.70, Low: 29.00, Volume: 31.98m Royal Bank of Scotland Group PLC (RBS:LSE): Last: 21.83, down 0.02 (-0.09%), High: 22.26, Low: 21.63, Volume: 32.70m Actually we havent heard from the Grim Reaper for a while That's not Chan. he works at a rival house Chan's with the MMT crowd but we're not going to go there Cos the MMT debate makes my head hurt And wiith a ucked up neck i dont need Actually talking Red tops Do you really want to go there? as supposed to be Holloway prison British Sky Broadcasting Group PLC (BSY:LSE): Last: 695.00, up 1.5 (+0.22%), High: 696.00, Low: 691.00, Volume: 621.23k So, returning to banks before we say something regrettable ..... Few more things around on the lenders. MOST upgraded RBS overnight We upgrade RBS to Equal-weight, as at 0.4x 2012e TNAV many headwinds are already priced in. Progress on non-core exit and rebalancing of funding, ahead of many peers, could allow the market to refocus on the core. Much of our caution on earnings is now in buy-side expectations: When we downgraded the shares we were not only concerned about the risks of challenging markets inflating the cost of non-core exit, we also had a cautious view on the outlook for core revenues. At that stage 2012e consensus EPS was 3.6p, vs 2p today. We think the market is now pricing ~7.5% ROTE in 2014e for RBS, roughly in line with our ~7% forecast (though still well below street). Progress on non-core is encouraging: RBS has reduced non-core by a further ~22% in the last 6m, down to £83bn. Today 9% of RBS funded assets are in the dedicated non-core division, although this is well below the 23% at Lloyds (33% inc-Verde) and ~30% at Commerzbank. Also, loan/deposits are now 106% (vs Lloyds 130%, CBK 117%) as well as prima facie more capital with B3 2013e core Tier 1 at 10.5% (Lloyds 7.9%, CBK10.0%). This is partly why we remain UW LLOY and CBK as, despite the differential progress, all three banks trade at 0.4-0.5x 2012e TNAV. Many hurdles still ahead, but non-core progress offers potential to focus on core over time. In our base case we see core RoE >12% in 2015 with gradual improvement. Three major risks remain: 1. the headwinds to earnings from the EU sovereign crisis - though RBS should be more resilient than some euro zone peers; 2. bank regulation; and 3. milestones such as restructuring the DAS, exiting APS and the sell-down of HMT stakes. Patience is probably still required here, and the prospect of a dividend remains distant, we think. Oh, and I think Manus Costello's talking to the parliament committee about how RBS exits the scheme today. Saw a couple of flashes. Along the lines that it doesn't need more capital. I thought we were bank bashing? We are. But we represent a wide spread of opinions. Such as this one from Credit Suisse, which is bank bashing. Following Q1 results and divisional reorganisation we have updated estimates and rebuilt our model - our underlying estimates are now 14.9% lower in 13E and 13.4% lower in 14E, giving EPS of 2.1p and 3.4p respectively. 12E underlying still expected to be breakeven, despite large loss at the headline level. Whilst the Q1 results were in line to slightly better, this was in areas which we do not think will be extrapolated to the full year, namely non-core and markets. TP reduced to 20p (from 22p), trading at 0.5x 13E TNAV for 4%/7% 13E/14E RoTE rating stays Neutral but with RBS our least preferred UK domestic bank. Detailed divisional targets have been dropped at this stage - prior to this redivisionalisation the group had c.154 targets. With the new structure the majority of these have not been updated, with only Markets and International Banking targets set with the FY11 results. For Markets we expect FY12E revenues of £4.2bn (-5% yoy), with declines thereafter. We see the restructuring in Markets announced so far as one step in an eventual path to a much smaller business. International Banking also expected to see revenue pressure as legacy ABN "Portfolio" business shrinks. Cost reduction will be key to achieving our revised group estimates, we have costs declining 25% absolute by 2014E from 2011. Government exit and/or capital return still some time away - whilst there has been more focus on potential exit strategies in recent months, we believe that this is still going to be a long drawn out process that may take several more years. On capital whilst the restructuring of Markets is a positive, again this will take some time and RBS will have to resolve the Dividend Access Share before payments are resumed. Carla Antunes da Silva And this one, again on RBS, from Bernstein. We're back to a repeat of H2 2011-debating the future of the Eurozone and the future of its present constituents. And just like the last half, bank stocks have taken a pounding as a natural short. In this note we take a look at RBS (23% off March highs) and argue why the bank is in a much better position than last summer - be it in terms of its risk profile or in the shape of its fundamental businesses. A valuation of 22p is based on a doomsday scenario which is not reflective of the state of the balance sheet. We argue that the stock has significant upside for those who are patient enough to hold it with a longer term (12 month) view Restructured GBM will continue to be a leading FICC franchise: The newly formed Markets division will continue to leverage RBS" strong UK institutional and corporate network and retain its US mortgage trading businesses where it is a top 5 player. The strength of the franchise was evident in the first quarter results where fee and trading income came in~ 10% higher than consensus. Fixed income and currencies rebounded strongly in this quarter with rates up 7% y-o-y and currencies up 2% y-o-y. Asset backed products and credit markets however were down ~30% y-o-y as RBS rebalances its profile post-restructuring. RBS has maintained its market share of fixed income revenues and we think it will continue to be a material player with a 5-7% market share. At a Basel 2.5. RoE of ~19%, the results were a reflection of the earnings power of the franchise that is often undervalued. UK retail will continue to be a 25% RoE business: Even as NIMs declined by ~ 16bps in Q1 owing to hedges rolling off and deposit margin pressure, it was offset by lower Risk weightings as RBS tilts the portfolio towards secured and declining impairments. At a 106% loan to deposit ratio, we believe RBS is still in a strong position to grow a highly profitable front book which will see NIMs and returns holding up at 25% levels In summary, RBS is a bank that still suffers from investors anxiety even thought the fundamental shape and quality of the balance sheet has significantly improved. The stock is back to trading at levels seen in the second half of last year. We believe the discount is unjustified and except in a very unlikely scenario of a disorderly break up on the Eurozone, represents significant value for an investor at today's levels. At the first signs of recovery / solutions coming out of the Eurozone, the stock is likely to outperform strongly (as seen in Q1 this year) Overall, we have revised our 2012 adjusted earnings upwards by 5%, driven by expectations of higher trading income and have left 2013 estimates relatively unchanged. We continue to rate the stock as Outperform. Target price: 40p Ok - that's all the bank grey I can take. No disrespect to Bernstein They used to have c154 performance targets Some kind of middle ground would be nice. Split the difference, perhaps. I guess with 154 targets you're guaranteed to hit a few. And with none you shouldnt miss any Though you're assuming it didn't include "Target 126: don't get nationalised" Anyway, should we push on? Right then - wider market. FTSE up 16 points at 5481 Though it feels dead out there. Volume very light on yesterday's slump, and no sign today that it's returned. Sorry was just reading this FSA thing FSA fines Habib Bank AG Zurich £525,000 and money laundering reporting officer £17,500 for anti-money laundering control failings The Financial Services Authority (FSA) has fined Habib Bank AG Zurich (Habib) £525,000 and its former Money Laundering Reporting Officer (MLRO) Syed Itrat Hussain £17,500 for failure to take reasonable care to establish and maintain adequate anti-money laundering (AML) systems and controls. You know I once interviewed the president of Habib Bank half way thru the interview i got taken outside by the flack Can I ask, are you jewish? I thought for a mo about trying to explain the concept of an Irish Catholic but just said No, why? Well you were asking difficult questions And we believe that the Western press is controlled by Jews Anyway, back to the market Yes, that's probably safest. It's all getting a bit Assange. Ok - it's very results driven today. G4S PLC (GFS:LSE): Last: 276.20, up 9.4 (+3.52%), High: 277.00, Low: 270.00, Volume: 2.34m This is the crew that are taking over the police, yeah? Among other things, yes. Partially on the Olympics. Though margins are taking a bit of a hit. Which, in the middle of austerity, is being seen as pretty decent. Here's Robert Plant - not that one - at JP Morgan Caz. G4S has issued its Q1 trading statement. Strong Q1 organic revenue growth of 7%, including a 1% lift from the London Olympics, accelerated from the 4.3% growth achieved in Q4 2011. As expected, the phasing of new contracts weighed on margins, which were down 40bps, and thus profits were flat year-on-year. Management expects the margin to improve in H2. We have maintained our estimates. We have an Overweight recommendation as we believe the valuation of 10.4x "12E earnings is attractive and the group has good structural growth. Organic revenue growth was 7% in Q1 or 6% after excluding the Olympics contract. This is an acceleration on the 4.3% growth in Q4 and 4.7% in Q3. Developing markets outperformed with organic growth of 11% vs. 4% in developed markets. Secure solutions (7% organic) outperformed the cash solutions business (4% organic), helped by the London Olympics contract, which is said to have added c.1% to group revenues. Secure solutions also benefitted from continued strong growth in developing markets and an improvement in North American commercial and Continental Europe. Organic growth is expected to improve during 2012. EBITA margin declined by 40bps, as anticipated, due to the phasing of cash solutions contracts in the UK and Government contracts, and the impact of US budgetary cuts. The FY 2011 margin declined by 10bp. The margin is expected to improve in H2. Estimates: we will maintain our forecast for 2012 EPS of 25.7p (Bloomberg consensus of 25.0p) and 2013 EPS of 27.1p (consensus of 27.4p). We forecast 7.5% organic revenue growth (5.5% excluding the Olympics) and a flat EBIT margin of 7.1% as we believe that G4S will see the margin rise in H2, especially as the new UK cash contracts fill the gap left by the two contracts lost in Q4. And an encore from Robert following the conference call. The Q1 conference call seemed very upbeat, in particular in terms of management talking up the prospects for organic revenue growth and mentioning a possible figure of 10% (after 7% in Q1). The issues relating to the 40bp margin decline were addressed and it feels to us as though the margin will be flat across the year. We have an Overweight recommendation as we believe the shares are attractive on a 2012 PER of 10.7x and we think the company has strong structural growth potential, especially from Developing Markets and Government Security. The next event is the Capital Markets Day on 22 May. Management said that organic revenue growth was 7% in Q1 (after 4.3% in Q4), although this was rounded up a bit (so growth could have been between 6.5% and 6.9%). Management expects organic revenue growth to strengthen across the year and mentioned 10% as a possible target. All areas of the business should see an improvement in organic revenue growth, except Continental Europe. The Olympics could contribute 2% to 3% to organic revenue growth although growth is expected to accelerate even excluding the Olympics. So - Governments across Europe getting in private security to maintain order during the austerity riots. I may be oversimplifying. Actually, hadn't thought of this obvious Olympics angle. Applies to Serco also - all the random fines they can impose on innocent visitors on the DLR etc. You bear a grudge, don't you Murph? Serco Group PLC (SRP:LSE): Last: 532.50, down 7 (-1.30%), High: 542.50, Low: 529.00, Volume: 646.73k Also, I see it'll be £15 to get into that bendy steel tower thing at the Olympic site. That's a random fine on innocent visitors as well. And not entirely justified, given Arcelor's bankrolled it. Ive got a link for Taxloss's new flat down under Check the second pic in that Seriously second rate wag A 12 foot high picture of Pam Anderson on the outside wall. You have to admire the .... Assuredness ... of the design. Back to more serious matters. Seen this LTRO III stuff Apparently god has jumped on that David's just pinged over the details Or gold. But your way may be true as well. What, gold jumped as well? He's nervous these days, god. Things ain't going well. Anyway, do kick on with the LTRO III stuff. Fitch: European Investors Lean Towards Third LTRO III Fitch Ratings-London-15 May 2012: European investors are moving towards the possibility of another long-term refinancing operation (LTRO) next year, according to Fitch Ratings" quarterly credit market investor survey. Fitch believes that another round of cheap three-year financing from the European Central Bank will be necessary for some banks because they will not have been able to deleverage sufficiently by the time the second LTRO needs to be repaid. The survey highlighted investors" concerns over eurozone banks" funding problems. 38% of respondents thought a third LTRO would be necessary compared with 16% who thought the near EUR1bn of three-year funding released so far should buy enough time to address banks" structural funding imbalances. Additionally, 25% of investors said they would not invest in any European senior unsecured bank debt. However, most banks still have access to short-term money, with three-quarters of respondents saying they would purchase short-term paper from banks outside the eurozone periphery. The shot-in-the-arm from the second LTRO is already fading, with respondents having turned less bullish on issuance volumes and more bearish on spread developments for the sector over the next 12 months. Only 12% of survey participants ranked banks as their top investment choice, down from 27% in the prior quarter and behind high yield, investment grade corporates and emerging market sovereigns. Central bankers" and policymakers" actions appear to have muted investors" concerns with regards to refinancing. Only 13% of investors said the bank segment faced the highest refinancing challenge, down from 22% last quarter and from the high of 49% in Q411 when the sector was ranked higher than sovereigns for the first time. Fitch believes the wholesale funding markets will remain volatile for banks this year and especially tough for those in peripheral eurozone countries. While Q1 presented many banks with an opportunity to get ahead of - in some cases even complete - their funding plans for 2012, this was borne out by a sharp contraction in issuance in April on the back of renewed eurozone fears. The Q212 survey was conducted between 27 March and 4 May, and represents the views of managers of an estimated USD5.6trn of fixed-income assets. The complete results of Fitch's quarterly European Senior Fixed Income Investor Survey will be published in a report Wednesday. Ok - this all pays into the theme that we're out of firepower We trust everyone has been reading Lisa on the Whale complete with wet towels round heads Actually, I've found it more easy to read than much of the explainers. Which are rather cursory on the detail of how they actually lost money. yes, well we are lucky to have someone who actually understands the CDS market All this JPM stuff is going political at some speed in the US here's Ben White from Politico THE DIMON/OBAMA SAGA - POLITICO's Ben White and Darren Samuelsohn on today's front: "Jamie Dimon was once the silver-haired hero of Wall Street, scooping up failing banks during the worst of the financial crisis and avoiding the kind of toxic mortgage bonds that sent competitors into bankruptcy and pushed the American economy to the brink. He was also one of President Barack Obama's most prominent Wall Street friends, a rare high-profile Democrat in an industry dominated by low-tax, free-market Republicans. ... But in the wake of a $2 billion trading loss, Dimon's reputation as a blunder-free Master of the Universe is badly tarnished. ... FRAUGHT RELATIONSHIP - "The Dimon saga serves as a near-perfect miniature of the Obama administration's fraught relationship with Wall Street and the world of high finance. Initially, the White House set itself up as a friend to the industry through the continuation of a $700 billion bank bailout with few strings attached. The administration cast itself to deep-pocketed supporters in New York as a bulwark against pitchfork-wielding reformers ... But as banking lobbyists and some of their supporters in both parties fought hard against even modest reforms and the Occupy Wall Street movement gained traction, the White House put more distance between itself and the banking industry. Dimon found himself off the guest list at a state dinner ... Privately, Dimon began telling pretty much anyone who would listen that reports of his best-friend-forever status with Obama were always exaggerated. DALEY ON DIMON - "[Bill] Daley told POLITICO that the latest revelations about JPMorgan underscore Obama's push for stronger financial regulations. "It's cost him a lot of money, contributions and a lot of criticism from the community," Daley said. But he's been consistent. Nor did Daley think the administration's past associations with Dimon would singe Obama. It's not like this wears off on the president in a negative way because he knows Jamie Dimon or he's taken a lot of contributions from the banking community over the last few years. I don't see it," Daley said. ... LIKE DEREK JETER IN A SLUMP? - "Dimon, meanwhile, must now try to convince shareholders and the broader public that the $2 billion loss was an isolated error ... It's a dramatically different position for a chief executive who was long seen as a different kind of bank leader ... Mike Mayo, a veteran Wall Street analyst now at Credit Agricole who has followed Dimon's career for years, quipped: "If Derek Jeter has one bad month, is his job at risk?" Daley also defended his former boss. He's been very blunt. In plain English. No excuses. No nothing, Daley said. "As far as right now and what can be done or not done, I don't know what else someone can expect of him."" Full story: http://politi.co/J5WWfy WHOOPI GOLDBERG: "Two billion is a lot of dough." ... PRESIDENT OBAMA: "That's real money. That is real money. Even for you Whoopi. MIKE MAYO ON JPM AS NEW GOLDMAN - From Mayo's latest note asking whether it is now JPMorgan's turn in the negative spotlight: "Despite a trading loss at only 1/1000 the size of its balance sheet, JPM's negative press seems related to its attacks against regulation and even Paul Volcker himself, not to mention the CEO's assurance a month ago that these issues were a "tempest in a teapot." The incident and headlines can lead to extra scrutiny (regulatory investigations; credit downgrades), management distraction, more defensive firm-wide positioning (can't afford another public mishap), and continuing questions about what took place. Art house. Haven't seen it. It's got a Baldwin in it. Though not a good Baldwin. Actually its got a friend of my daughters in it as it happens Work that out if you can We're waffling rather a lot today. It's as if we're woefully under prepared. Facebook Inc. raised the price range for its initial public offering to $34 to $38 a share. The new range, announced in a regulatory filing today, compared with a previous range of $28 to $35. Which lifts the value above $100bn. IG saying market cap spread is For one website that you can't really use on a mobile phone. So that's expecting a >10% spike on opening day. Thing is kids are actually using facebook on iphones but they cant really serve ads properly on iphones Isn't that why ad revenue growth is actually slowing? Same deal with Linkedin ..... Redistributes wealth of the idiotic Frankly, I'd be in on the IPO, but I'd be out by the end of the first day. Actually, SIG has pulled together some figures here. We are tweaking our 2012 and 2013 estimates to factor in the company's comments on its second quarter trends in its updated S-1 filing. Specifically, we are now modeling 2Q"12 revenues/EBITDA/EPS at $1.2bn/$616mn/$0.12 vs. $1.32bn/$702mn/$0.15 previously. For 2012, we estimate revenues/EBITDA/EPS of $5bn/$2.5bn/$0.48 vs. $5.2bn/$2.65bn/$0.51 previously. Our 2013 revenues/EBITDA/EPS estimates are currently at $6.68bn/$3.27bn/$0.60 vs. $6.9bn/$3.45bn/$0.64 previously. By comments they mean ..... Continued trend of (daily active users) DAUs increasing more rapidly than ads delivered. Simply put, this means lower ad coverage for higher usage on the platform. Facebook believes this trend is caused by increased usage of Facebook on mobile devices, where the company is only showing an immaterial number of sponsored stories in News Feed. In other words, maximizing consumer experience is again showing lower ad coverage. So SIG are expecting FT 2012 EPS of $0.48. That's down from $0.51 and $0.64 respectively. So forecasts are already falling as the IPO valuation range is hiked. It's all quite bizarre. That last person that added me on that was a young handsome chap from somewhere in the middle east It's going. I think someone brings it soup once a day and checks if it's all right. I shut down my account almost immediately after opening it. My kids seem to be increasing users of Tumblr now Anyway, enough of that Oh, and since we're waffling on tech ..... There's some fantastic stuff flying around the email round robins on Zynga .... The developer of Farmville etc. None of which I can repeat, as the lawyer's not available at short notice Any small caps to mention? Idiots buying Plus Markets Up 30% to a third of a jam tart Let's put it down to short covering. Wheels back on Chariot Yeah, UBS is pushing that one. trading at 83p suddenly Can see the merit of a rally. Possibly oversold. If you want to take a punt on the next prospect, Nimrod, coming in. Since Nimrod's huge, potentially, and the first drill's being bankrolled by BP. Following Chariot's announcement of a dry hole on the Tapir South prospect, and the resulting share price move, we see Chariot shares as trading now in line with the value implied by last year's farm out deals with BP and PGS of 77p/sh (cash makes up 31p of this - see p2). We think this creates an extremely attractive entry point ahead of drilling the Kabeljou-1 well (Nimrod) which is expected to spud in 3Q (rig to be contracted). This prospect, at 4.4bn bbls, offers >500% upside to our NAV, and c3000% upside to the current share price in a success case. Importantly, the Tapir South dry hole has zero read across to Chariot's central and southern blocks. This leaves c10bn bbls of prospectivity left to play for, which will be de-risked in the south by the Kabeljou well, and in the central block once 3D seismic interpretation is complete towards 4Q12. Contrary to the northern block, wells already drilled close to Chariot's southern block demonstrate evidence of a working hydrocarbon system - a risk in our view is hydrocarbon phase. The Kabeljou well is covered by BP hence Chariot will retain its $100m cash position. However we reiterate that Chariot must look to farm down its acreage prior to drilling any more wells, as it is planning for the central block. We reduce our NAV to 429p from 569p previously by removing Tapir South. We increase our overall risk discount on NAV to 50% hence set our PT at 215p. Elsewhere in small caps ..... Man Group PLC (EMG:LSE): Last: 82.50, down 0.5 (-0.60%), High: 84.15, Low: 82.00, Volume: 7.14m Good note from Numis today Arguing that AHL may well be beyond repair and looking at wind-up values. To invest in Man today, you ultimately need to believe that AHL will perform well over the next 1-2 years, allowing it to recover its poor 1 and 3 year performance numbers and preserve/improve its still reasonable 5 year record. To perform, AHL needs markets to trend for a sustained period of time, rather than a continuation of frequently gyrating "risk-on risk-off" ("RoRo") markets with no ultimate trend. Given the number of global macroeconomic issues which are likely to remain unresolved for the next several years, we believe RoRo may persist for some time. As such, we conclude that AHL will continue to struggle and we think there is little that management can do to change this. We are therefore departing from the rose-tinted analyst community consensus view that AHL is on the verge of returning to long run performance of 10-15% p.a. and therefore everything is about to recover. We now believe Man is worth no more than its liquidation value, which we estimate as between 50-75p/share, depending on how bullish/bearish you are on the ability and timing to liquidate (the longer it takes, the worse things will get and the harder it will be to realise value). If your view however is that AHL is able to recover performance within the next couple of years, then our sell recommendation is undoubtedly wrong at this price. Regardless, we believe there is ultimately just too much uncertainty for anyone to reasonably predict the medium to long term earnings potential for AHL/Man today and thus we would not consider the stock investable, unless it were to fall well below liquidation value. Liquidation Value: The balance sheet is worth 36p/share - net cash (including perpetual debt which the company treats as equity) of 9p/share, a variety of investments valued at 37p, -16p of working capital and 6p of PPE. We assume GLG currently generates c.$265m of management fees which at a 10% operating margin, 24% tax rate and 12x multiplier, makes it worth 8p/share. Assuming average GLG performance fees of $75m, at a 45% operating margin, 24% tax rate and 6x multiplier, these are worth 5p/share. Assuming the institutional business has revenues of c.$125m, with a 10% operating margin, 18% tax rate and 12x multiplier, this is worth 4p/share. AHL currently delivers c.$575m of net revenue, which at a 35% operating margin, 18% tax rate and 2x multiple (i.e. assuming run-off), is worth 11p/share. In aggregate, this implies 64p/share of value (our new target price), although clearly you could argue much lower or higher values for all of these items, with more bearish or bullish inclusions/exclusions and multiples. We believe 50-75p is a reasonable range estimate for what Man could be liquidated for today. David McCann and James Hamilton are the analysts, both of whom we rate highly over here. Prominence of the common price component destroys trend investing. Almost by definition black box strategies must be like computers - they just stop working after a while Gambling logic 101. Any system you apply can only gives you many small returns until it delivers one massive loss. @BBB+ it is, though, isn't it? Right - we're through midday. Should mention British Airways, if only in passing. International Consolidated Airlines Group SA (IAG:LSE): Last: 154.60, down 4.8 (-3.01%), High: 158.00, Low: 154.00, Volume: 3.59m They'll change it back to British Airways once Spain exits the eurozone. Anyway, Caz downgrades. Valuation. Switch to Germany. Our fundamental view on IAG remains unchanged. We continue to expect IAG to deliver significant value longer-term through structural cost cutting, and synergies from the BA/Iberia merger/American Airlines JV. Near-term, we see headwinds from weaker Spanish trading, coupled with higher than expected bmi losses, and an overhang from Bankia (IAG's biggest shareholder). We have made small tweaks to our earnings estimates, although our price target is unchanged. However, with IAG's share price significantly outperforming peers year-to-date, we see greater upside elsewhere (Lufthansa is our top pick), and downgrade our rating on IAG to Neutral (from Overweight) as a result. London remains strong, but Spain is weakening: Reassuringly, the market out of London remains strong; particularly long-haul premium and transatlantic. However, the Spanish/Eurozone macro outlook "deteriorated" in 1Q12, leading to a "worsening commercial performance" at Iberia's Madrid hub. We remain of the view that premium traffic will outperform in 2012, and whilst GBP strength is a positive (BA's profit stream is worth more), IAG has the highest level of peripheral Europe exposure of its main legacy peers though Iberia, highlighted by the relative BA/Iberia performance in 1Q12. Excluding €25m in strike-related costs, Iberia generated an EBIT loss of -€145m, whereas BA's loss was -€74m (assuming 1Q12 average GBP/EUR). And I think that'll do for today. Oh, hang on ... someone was asking about Carnival. Carnival PLC (CCL:LSE): Last: 2,026, up 59 (+3.00%), High: 2,037, Low: 1,978, Volume: 255.90k Industry pricing apparently improving. Theyve been slashing prices i believe My parents have booked some Med cruise for June Reports vary. I think Costa may be chasing customers, for understandable reasons. But cruise pricing is famously opaque and timing is all. But like airlines. You catch them when they have spare capacity and they'll give you the berth at below cost. How the hell do you know about cruise pricing Bryce? I wrote something about wave season once. It all sticks. Anyway, here's UBS on an industry overview. Based on the UBS Data Tracker (tracks 7,000+ cruises for 6 largest North American lines and 2 of largest European lines), prices up ~30bp this week. Costa pricing ~40bp seq and has recovered a cumulative ~200bp (over last 6 weeks) of ~800bp drop that the brand saw in late March/early April. Costa has been best cumulative performer of all brands in our survey for past 6 weeks, beginning with week immediately following the price cut. We believe this indicates CCL's pricing actions for Costa have succeeded in driving volume, though our Tracker doesn't reflect other "value-add" incentives, like credits, airfare and agent commissions. Q2"12 has been up ~1% sequentially in each of the last five weeks, and up 5% since the week preceding the Costa pricing cuts. However, pricing for Q3 sailings are down ~20bp this week and have been down sequentially every week since the beginning of April. While we are moving toward Q3, which is the quarter that will see the greatest impact to bookings from Concordia, we do see a promotional environment and expect to see that continue for Q3 sailings. Our pricing checks indicate that for the "12 cruising season, Caribbean sailings have been holding steady since early/mid March after a slight price correction, and are still up since the start of the year. Alaska is down slightly week-over-week, but is still up since the start of the year and has increased sequentially in two of the last three weeks. Finally, Mediterranean pricing has stabilized since late March/early April, after a downward pricing adjustment in the region. Let's wind this up now. Thanks everyone on the right Good luck with the house move Taxloss And enjoy the red card I'm about to give you. Cheeky blighter. See you tomorrow, all. This entry was posted by Paul Murphy on Tuesday, May 15th, 2012 at 11:02 and is filed under Uncategorized.