Markets Live: Friday, 26th October, 2012 This is the transcript of the Markets Live session ending at 12:14 on 26 Oct 2012. Participants in this session were: Paul Murphy Bryce Elder David Keohane Andrew Betts has turned the full fat streaming on, sso everyone should be fine And we are NOT sharing that just cos i left Bryce in the lurch yesterday That's Wen Jiabao - the alleged $2.7bn man Poor guy has been smeared by the New York Times BEIJING - The mother of China's prime minister was a schoolteacher in northern China. His father was ordered to tend pigs in one of Mao's political campaigns. And during childhood, "my family was extremely poor," the prime minister, Wen Jiabao, said in a speech last year. But now 90, the prime minister's mother, Yang Zhiyun, not only left poverty behind - she became outright rich, at least on paper, according to corporate and regulatory records. Just one investment in her name, in a large Chinese financial services company, had a value of $120 million five years ago, the records show. The details of how Ms. Yang, a widow, accumulated such wealth are not known, or even if she was aware of the holdings in her name. But it happened after her son was elevated to China's ruling elite, first in 1998 as vice prime minister and then five years later as prime minister. Many relatives of Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership, an investigation by The New York Times shows. A review of corporate and regulatory records indicates that the prime minister's relatives, some of whom have a knack for aggressive deal-making, including his wife, have controlled assets worth at least $2.7 billion. Like I said, outrageous smear Lets find a quote of the day to accompany our portrait of the day Any trivial matter multiplied by 1.3 billion will become a big problem; Any astronomical figure divided by 1.3 billion will become a tiny number. A little kindness multiplied by 1.3 billion will become an ocean of love; A great problem divided by 1.3 billion will become a trivial matter. Don't the NYT realize that Grandpa Wen is very humble and speaks lifting words? alexander.wise - first name dot second name at ft.com lets do markets rather than smears Though as as footnote I'm struck by how much he looks like Estelle Getty. Off 35 points at 5769-ish. That's estelle getty btw Oh, perhaps it's only me who can see the resemblance. Anyway, what to blame? Should we start there? Get it out of the way? ple trading at 609 pre market Q4 in line, guidance disappoints. Guidance for $52 billion and a gross margin of 36% in Q1. Still a bit surreal talking about a toy maker doing $52bn of sales and a 36% margin inside three months, but still..... It's down from a 40.0% margin in Q4. Blaming new product startup costs, basically. Lower profitability as it upgrades. IPad Mini margin "significantly below" the company average, apparently. Oh, and supplies of the I5 remain very tight, as our fine readers were talking about yesterday. But Ipad sales are only tiny part of Apple revenue surely Its the Iphone that matters Yup - and unless they can sort out the manufacturing side they may be struggling this quarter too. (Assuming there is untapped demand .... It's the old newsagent theory ...) Shall I just zap adams? 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. ... As in, you want to be left with one newspaper at the end of the day. oh shoot, meant to speak that, not type it Sorry for interruption again He's my boss, Murph. I can give no guidance here. Instead, here's some grey to tell you to keep buying Apple Which remains consensus long on the sellside. Atlantic Equities, perhaps? No idea who they are. Apple's Q4 missed our forecast but was largely in line with consensus as stronger iPhones offset iPad weakness. However, Q1 guidance provides reassurance regarding continued strong demand and, although this is forecast to come at the cost of margins, evidence suggests this is predominantly a temporary rather than a structural change. We remain Overweight but lower our price target to $725, from $760. Don't make me explain the grey. That'd require reading it. Profitability takes a hit: This momentum is, however, coming at a cost to profits, with Q1 gross margin guided to 36% (cons: 43.2%). Declining iPad ASPs are likely contributing some pressure, but we believe the majority of the step-down is temporary as opposed to structural, driven by the number of recent product launches and the iPhone update in particular. We note that gross margin last took a step-down after the last iPhone form factor change, after which it rapidly re-expanded to prior levels. We therefore expect QoQ improvements over coming quarters, although the tablet pressure may prevent it returning to the H112 mid-40s level. ■ Lowering price target: We are reducing our FY13 and FY14 EPS estimates by ~$5 to reflect the near-term pressure on gross profit from the product ramps (FY13) and some incremental caution regarding tablet profitability (FY14). Our price target is based on a 12x FY14 PE multiple, broadly in line with the stock's current forward multiple and the average over the last two years. And Cowen & Co, whom I have heard of. Conclusion: AAPL reported mixed F4Q12 results AMC on 10/25. Revenue was in-line, but our twice lowered, below consensus iPad estimate was still ~1.1MM too high; iPhone units beat consensus by 1.5MM. Management guided to a ~45% q/q increase in revenue as new product introductions should drive sales across all four of the company's major product lines (iPhone, iPad, Mac, iPod). We see three possible catalysts for the stock and estimates over the next two quarters: 1) iPad mini turns out to be more a TAM expander than cannibalizer, 2) iPhone 5 is launched in TD-SCDMA, opening China Mobile, 3) overall iPhone 5 demand ramps more sharply than we model. We continue to see shares appreciating ~15% relative to the market over the next 12 months. There's tonnes of this stuff. Apple Inc. (AAPL) posted September-quarter EPS of $8.67, above our $8.58 estimate but below the Street's $8.85. While supply constraints kept the iPhone 5 from meeting demand, Apple still sold 26.9 million iPhone units, ahead of our/consensus" estimates of 23.6 million/25.4 million units. Strong iPhone sales were largely offset by weak iPad unit sales of 14.0 million, well below our/consensus" 18.0 million/17.6 million estimates. EPS were negatively affected by lower OI&E but helped slightly by a lower tax rate, netting an unexpected negative $0.12 to EPS that is likely to be reversed in the December quarter. Apple gently guided December-quarter revenues lower, but the GM guidance of 36% was 700 bps below consensus" F1Q13 estimate of 43.0%. Management justified the lower-than-anticipated GM guidance by highlighting the unprecedented simultaneous product launches, each facing new cost curves. We expect Apple's iPhone 5 product (supplemented with new product cycles sparked by a refreshed iPad, iPad Mini, iMacs, and MacBooks) to help propel Apple shares due to strong, double-digit revenue and earnings growth well into 2013. TAM expander = total addressable market according to david Oh, it's marketing nonsense. What people who went to sports universities learnt as their fake degrees. er, thanks for that image Brien O Flan and the sudden belated departure of Cynthia Carroll We have got to come clean hear and say we do not know why she has gone now Mining shrewdies have their phones turned off... Well .... sources such as Kleinmanwire (and us, though less bombastically) have been talking about shareholder pressure. And the share price reaction tells much of the story. Anglo American PLC (AAL:LSE): Last: 1,907, up 49.5 (+2.66%), High: 1,920, Low: 1,879, Volume: 3.39m With Carroll out of the way, I suspect the idea of a proper serious break-up of Anglo is back on. Particularly if they bring in an outsider to replace her. Do we think Mick Davis might take this job? Shareholders might welcome it. Not sure Mick would though. Alternatives are Alex Vanselow, ex CFO of BHP. Chris Griffith the strongest candidate internally, apparently. He's the guy who's been dropped in to fix Amplats So, Merrill rather brutally add Anglo to its buy list on news of Cynthia's resignation. We upgrade to Buy, with 40% upside to our new GBp2600 price objective (from GBp2400 previously) set at 1x NPV. Anglo is trading on a 30% discount to DCF, and a 37% discount to SOTP valuation (table 1). We believe an incoming CEO may be a catalyst for change, and we outline several steps for unlocking value. The structural and other challenges facing any potential incoming CEO remain significant i.e. South Africa, labour relations / union unrest, the platinum business (currently undergoing a review), capital controls, Minas Rio. We believe these challenges have heavily weighed on the share price and sentiment (and drove our downgrade to Neutral), and are well understood and reflected in valuation. We believe however that an incoming CEO with a "clean slate" can be the catalyst for turning around the challenges above. We have written extensively before on the steps that we believe can unlock value: 1) spin-off the platinum business; 2) spin off the whole South African business from the international assets; 3) sell down a stake in Minas Rio. here's those two candidates And here's Mo's dog charlie, who is not at all impressed by this market (The BHP guy's tie appears to be made of copper. That must be a positive indicator.) And, rabble, do please keep sending your pictures for Readers" Mutts. Send them to Paul, I mean. I take no responsibility. Actually! Speaking of mutts! DJ style segway coming up ... Interview in earlier this week with Mr Dan Wagner. Jeepers. blast from the past Famous for Dial-a-dog. Where's his penguine waste coat tho? He's smarter now, apparently. By appearance at least. Dial-a-dog very very funny Anyway, he's now taking on the ex Twitter guy with mobile phone payments. And good luck to him. Personally, I think mobile phone payments are a solution trying to find a problem, but who knows .... Given that it's Friday, shall we have a competition? We ahve loads of prizes here Ive got a DVD of Margin Call to give away - pre release But we've got to do a review of the film David jsut saw it last night predict the precise level of the Footsie at Noon today To two decimal points. I haven't prepared a review but... Good film. Nicely tense There is something odd about Demi Moore's cheeks - might be a metaphor though Overall, worth competing for Win the DVD here and now - Footise at 12 noon London time Cut-off point is 11:40 for your entries. @emptyend: other websites are available. Ok - let's turn back to movers shall we? Weir Group PLC (WEIR:LSE): Last: 1,740, up 52 (+3.08%), High: 1,746, Low: 1,719, Volume: 1.07m Up against a falling market, and I don't quite get the reason why. The reason, such as it is, is this (Reuters) - Industrial machinery maker Gardner Denver Inc (GDI.N) is exploring a sale and has drawn initial interest from several major private equity firms, according to people familiar with the matter, in a deal that would top $3.5 billion. Gardner Denver's bankers at Goldman Sachs Group Inc (GS.N) have started to reach out to potential buyers in recent weeks and have asked for first-round bids by November 5, the people said on Thursday. The company may still decide not to sell after it completes the process, they added. Now, Gardner Denver is #2 in the shale gas pump market. Gardner Denver was up 21% overnight on the news that it's basically for sale. But, for Weir, what are we meant to conclude? It can't buy Gardner Denver, surely. A competitor struggling is good news, I guess, though we knew that yesterday as well. I'm a bit mystified as to why this is being read as positive. I guess we can do the old "GE might buy Weir" thing ... but why does that news become more likely on Gardner being for sale? And neither does Citi, as it happens. Weir Overlap Is Under 20% of Sales for Gardner Denver - Gardner Denver is the number two player in shale pressure pumping after Weir. However, according to its investor presentations GDI has c19% of sales into upstream energy, and on its 1Q12 announcement it stated that pressure pumping represented only 13% of 2011 sales. The other key businesses include Compressors and Blowers and have a more general industrial end market bias. While this does highlight strategic uncertainty at its major competitor we do not see this as a major catalyst for Weir. We would see any consolidation between Weir and Gardner Denver as being challenging given their high combined market share. Therefore the only read-across seems to us to be a general renewal of speculation that Weir could be an M&A target following unconfirmed press speculation (e.g. Bloomberg) in September that GE could have interest in Weir. However, we would highlight that Weir is well above GE's ideal maximum deal size of $3bn. Valuations of Weir and Gardner Denver in Line Post 21% Rise in Gardner Denver - Post the 21% rise in the Gardner Denver share price yesterday, it is still only valued in line with Weir group (based on Bloomberg consensus for Gardner Denver and Citi forecasts for Weir). Gardner Denver is on a 2012E EV/EBITDA of 8x, in line with the multiple of Weir group today. Trading Remains Uncertain - Gardner Denver is scheduled to release 3Q results on Monday. However, another shale peer FMC Technologies already reported and reduced guidance this week. Also, the oilfield service companies still see a challenging N.A. pressure pumping market with excess capacity, and some portion of the N.A. frac fleet has been "stacked." Mining competitor Metso also reported yesterday and reported Minerals orders down 25% like for like - Weir is a latercycle mining capex play than many of the peers, but we continue to see a weaker outlook in this business on a two-year view. Neutral - We retain a Neutral rating on Weir with the current valuation being broadly in line with its mining peers, although at somewhat of a premium to the oil & gas peers. Or perhaps I'm totally wrong about the reason and it's because Weir's threatening to quit Scotland. Oct. 26 (Bloomberg) - Weir Group Plc, the world's largest maker of hydraulic fracturing equipment for the oil industry, would consider moving from an independent Scotland should the cost of staying become too high. An increase in corporation tax, higher company pension expenses and additional regulatory charges are among the issues Weir would look at, Chief Executive Officer Keith Cochrane told a committee of U.K. lawmakers visiting Glasgow to study the economic implications of independence. Shire recently announced that it is to reorganise itself as an Irish company for tax purposes, registered in Jersey. Murphy is routinely critical of those who successfully avoid tax - possibly because he has never managed to avoid any himself. Just quick mention of the wider market Dow futures pionting to 87 point fall at the opening over there Footise off 44 points or so You've got a couple of mins to get Margin Call DVD entries in Footsie at Noon , london time Some mention of Man Group on the right. Man Group PLC (EMG:LSE): Last: 80.75, up 0.7 (+0.87%), High: 81.10, Low: 79.05, Volume: 6.74m After Odey turned up on the shareholder list. And refused to return Sam Jones's call But did manage to give the guy at the Telegraph a ring back. To say, basically, that he's not buying for a bid. He's buying because he likes equities. this is Cluckingham Palace Odey I like equities, I think that there's a bull market to be had ... I wanted to find something that was a very cheap play on that. You can see his point on Man - leveraged bet on rising equities And a cost story there too .... Stick AHL into run-off, sack approximately nine-tenths of the staff Stick the former GLG chap in charge. Someone of other was running the numbers on Man today .... We turn holders of Man Group on a valuation basis. The 2013E management fee only valuation and performance fee option value based on current fund returns and high water marks for AHL and GLG yields a valuation of 75p/share. We forecast management fee only dividends for 2013E of 5.6p implying a yield of 7% on the current share price. We ignore the likely performance fee dividends given our optionality valuation. The current share price presents a downside risk of 6% based on our target price offset by the dividend yield. We see valuations as fair given the earnings potential of the company. We have factored in notified outflows in October of $0.6bn in managed funds of funds and $0.8bn in long only. We expect AuM closing levels for FY12 of $59.8bn based on market performance offsetting net outflows. We expect performance of AHL will continue to remain choppy as reflected by our valuation of 2p/share optionality attributed to AHL. We expect GLG to deliver a large proportion of any near term performance fees, reflective of our 15p/share valuation. We value Man Group on a one year forward ROE vs. PBV for management fee revenues yielding a valuation of 58p. We add 2p/share based on our option valuation model1 for AHL given it remains 14% away from high water mark. GLG option value on the same basis adds 15p/share. Our target price sums these to yield 75p/share. Man Group AuM divided by market capitalisation is now currently 3.9p/£ of managed AuM down from 6.7p/£ at FY11 and 13p/£ at FY10. Acquisitions in the sector are generally done around 2p/£ of AuM acquired. The premium associated with Man Group AuM was/is the result of contractual ability to earn high performance fees. Man Group revenues continue to be highly leveraged to the performance of AHL which contributes around 70% of management fee only revenues. Consistent AHL performance will remain the primary catalyst for a re-rate in the shares. Whatever Odey's seeing here, I'm not. speedy - you need sales staff... And, as for the bid angle ... the last theory was that Blackrock was interested .... Which rather ignores the fact that Blackrock owns Man stock in various funds for clients. It's not a strategic investment. Anyway, let's move on. we should mention Mirror briefly Taken another wack - down 15.5% today This is after the news that it has been dragged into the phone hacking scandal Sven_Goran amongst the claimants has Sly Bailey gone yet? If not, her coat's on and her taxi's called. Actually, totally aside from the phone hacking shenanigans, just looking at the digital ABC data. Mirror Online did 738,236 average daily browsers in September. that's pretty awful isnt it? Well, it's down 12.1% from August. By comparison, the behemoth Mail Online did 6.4m average dailies. Which was down 2.9% from August. Whatever the Mirror's strategy is, it's probably not supposed to do that. (@Mo: BP down 6%? Really?) Ok - in the remaining five minutes ..... Big rally in CPP Group, though I'm lost as to why. (That seems to be today's theme. Me being lost.) Trading update is reassuring, I guess. In the sense that trading's not worse than expected for 2012. So can we back up a bit here? CPP does mobile phone insurance, yeah? And it's subject to an FSA investigation, yeah? And revenue is down sharply Oh, and you forgot to mention that its credit line expires in March And that it can't borrow against the card protection business until the FSA investigation concludes. And creditors are - understandably - getting very itchy about CPP's survival plan to ringfence a compensation fund. So ... yes ... shares up 20%. Allow me to grap some comment that might shed light on this. Q312 IMS: CPP's group Q312 IMS statement confirms that while 2012 remains in line with expectations the business continue to be impacted by the FSA investigations into the UK. Further the outlook for 2013 is clearly tougher with the uncertainty around the UK remediation process likely to result in earnings being significantly lower. The company continues to study all options around the potential funding of the business.  Declining trend continues: Group revenues have declined 6% (YoY) with renewal rates for the group slipping to 74.1% (74.7% H112). Live policies are currently tracking 0.5m fewer than in H112. CPP announced that is has added new partners in Spain (Vodafone), Ping An Bank (China) and Axis Bank (India) and that Citibank has confirmed its decision not to renew its contract in Asia Pacific at the end of the year. Divisionally, Northern Europe (-7%YoY) and Southern Europe (-10%) saw a decline in growth as expected while growth in North America (+4% YoY) and Asia Pacific (-2% YoY) have now slowed down and the trend is expected to remain for the full year. FSA update: While the FSA investigations are ongoing, one bit of positive news was that the company has agreed to an operational framework with the FSA that is likely to be implemented in H2 2013. In the short term the company can continue to sell its packaged solutions (with retail mobile insurance now restricted) but once the above framework is signed off it could look to potentially sell new products. The company continues to work towards a solvent scheme of arrangement, which, if approved by the court, should provide visibility over the size of potential remediation by the end of 2013.  Financing issues remain: With restrictions on asset disposition and the Card Protection part of the business barred from participating in new debt borrowing, the company continues to explore all available options around resolving its funding solution with the current facilities mature in March 2013.  What does this mean? The statement confirmed that FY12 numbers to be broadly in line however, the outlook for 2013 is clearly deteriorating and until we have visibility over the take up on the size of the remediation forecasting is tricky. It is clear though that the numbers are likely to be well below consensus earnings which were already looking for a 15-20% YoY decline in 2013. However, on its current rating, it is all about resolving the remediation and funding situation and until this is achieved we remain cautious on the shares (Neutral). Can I interrupt - here's my noon reading for the Footsie - which is FINAL Who is the closest to that? (@Jarvis2009, @CS1: nice try chaps. The cut-off was 15 minutes ago though.) While we check let you get back to CPP We can do, I guess. Though there's not much more to say. The risk-reward is a tough one here, surely, when the risk of zero is so high. Caz's new numbers, just in case anyone needs them. Changes to earnings estimates. We have lowered our underlying operating profit estimate in FY13 by 32% from £28m to £19m. This reflects the estimated impact of lower Mobile Phone Insurance revenue as well as uncertainties surrounding customer redress and renewal rates. Our underlying operating profit estimate in FY12 falls by 2% from £34.7m to £33.9m, to reflect the current trading trends. Ok, I think we have a winner! Congrats GB - drop us an email with your address and we will rush the DVD over to you (@tk: haven't been. Reputation is fiercely expensive and value perception largely view dependent.) 5759 was GB's call i belive Anyone want to challenge that? I may hve missed an entry Anything else to cover Bryce? Um ... No one's mentioned Random Penguin, so we'll not either. Pearson (PSON:LSE): Last: 1,221, up 9 (+0.74%), High: 1,237, Low: 1,211, Volume: 1.15m Oh, and should note the Asos placing now on the tape. Asos PLC (ASC:LSE): Last: 2,224, down 102 (-4.39%), High: 2,300, Low: 2,134, Volume: 4.85m Numis did the business. ceo's pay was mentioned on the right earlier - need to look at that As you do when you're expecting a bid from Amazon.... Ok - I think we're done now. Nothing else worth mentioning. Correct me if I'm wrong, rabble. Now we have some important LATE NEWS Bryce and I are BOTH going on half term holiday It's nothing to do with you, ROTR. Your company each morning is the sunshine of our lives, the wind beneath our wings. But neither of us has had a holiday all year, so we're taking one. (Not together. That'd be weird.) Rest assured, if there's a need for an emergency session then one will be called. And America's afternoon show will abide. Stewards enquiry into the Margin Call comp??? 11:45am GB Krona: 5759 Moderation options ▼ 11.45 inclusive or not?? Call in one of the Steward or shall we just give it to GB anyway? The rabble have voted. Give it to GB. Ok and i have also put this into a random choice generator supplied by David The system works. Now. Let's go to lunch. Seeya all a week on Monday Well, unless something happens, in which case we'll alert on emergency sessions via Twitter.