Markets Live: Monday, 8th October, 2012 This is the transcript of the Markets Live session ending at 12:04 on 8 Oct 2012. Participants in this session were: Paul Murphy Bryce Elder spelling still borkedBlock Hope you like our new lookBlock If you see tech problems, ping us a mailBlock Yeah, screenshots welcome.Block (By which I mean screenshots to stuff going wrong) Block (We don't care otherwise.) Block connecting to stream" - will set at the top of the chatBlock Pants on. Medium tight.Block Euro finance ministers meeting.Block South Africa implodingBlock And then there's ...Block Not following the scriptBlock National Bank of Greece up 10%Block Both stocks were up 16% earlier after the trading suspension was lifted.Block This is to celebrate Angela's visitBlock And also the fact that NBG is taking over Eurobank in an all share deal.Block Suspect the price spikes are caused by chaotic short covering.Block Either that or there is some sort of excitement that the enlarged entity will have almost 50 per cent market share.Block Not a moment too soon for Eurobank, given the impending name change to DrachmabankBlock Wanna run us thru the prices Bryce?Block (@dr001: while we always appreciate feedback, please do let us know as much as possibly about what you're using - browser, etc. Otherwise it's just one bloke moaning "this canoe won't float.") Block (Deep Breath everyone...: - could you not click on the ML tab?) Block Been worse, but still down.Block FTSE down 37 points at 5833.Block Miners, to no surprise, leading us down.Block EVRAZ plc (EVR:LSE): Last: 240.60, down 13.5 (-5.31%), High: 251.72, Low: 240.00, Volume: 839.60kBlock Vedanta Resources PLC (VED:LSE): Last: 1,060, down 41 (-3.72%), High: 1,087, Low: 1,058, Volume: 209.65kBlock Eurasian Natural Resources Corporation PLC (ENRC:LSE): Last: 322.00, down 11.3 (-3.39%), High: 329.90, Low: 321.70, Volume: 524.09kBlock Kazakhmys PLC (KAZ:LSE): Last: 718.50, down 19.5 (-2.64%), High: 730.50, Low: 716.50, Volume: 241.06kBlock Old Mutual PLC (OML:LSE): Last: 168.20, down 4.2 (-2.44%), High: 171.60, Low: 167.70, Volume: 3.86mBlock South Africa uncertainty really beginning to spread now.Block Rand under attackBlock People talking about devaluation.Block General strike looking increasingly likely.Block Not good for my prospects of renting my Moz place outBlock Well, ive rented it for Xmas cos can't afford to go there myselfBlock Still free early DecBlock Christmas in Mozambique sounds jolly nice.Block Anyway, Merrill is saying "get out of SA"Block In an investment sense.Block In this note we downgrade SA consumer from longstanding Overweight to Neutral on a US data supported mini-rotation from quality to risk globally. We keep SA banks underweight as their status as the GEM equity low risk equivalent of US Treasuries has less value to year end. On strikes, we cut SA resources from Neutral to underperform. Net net, we're now underweight the country. Block With aggressive FED and ECB policies, US ISM and auto sales strength and a reasonable US payroll figure - the backdrop for the continuation of the minirotation out of expensive quality into slightly higher risk growth recovery proxies is likely to be sustained for now. This is a headwind for South Africa equity performance. Even excluding negative strike headlines, this global mini-rotation alone (even if at the margin) is likely to mean that the consistency of growth from the more expensive heavily owned South African rate sensitive and consumer stocks would prove relatively less attractive to year end. In EEMEA that would mean SA is likely to lag under owned and undervalued Turkey on a return to its own rate sensitive growth and cheap Russia as a global risk/growth proxy. Unless this is the great rotation out of US Treasuries, German bunds & gold, then SA domestic's safe haven status is just facing some temporary challenges that could easily reverse by 2013 if global growth optimism is not sustained. While we're pleased we've kept this overweight for most of the time since late 2009, with the current greater appetite for risk globally and the strain of South Africa's heavy strike disturbances, we're finding a considerably less receptive audience to our thesis that the well owned South Africa consumer is a major beneficiary of lower for longer global rates. Ultimately we expect to again push this theme with passion. But in the short window to year end, it seems difficult to defend an overweight. We downgrade SA consumer to neutral. On structurally challenged SA resources, we've argued that beyond a QE3 related risk pop, it's tough to build an investment case. Rand weakness is clearly a relative plus, but in this liquidity fueled world we can't see a scenario for sustained Rand weakness unless it is associated with a spiraling of strike driven pain for resources. Although there is limited global money in SA resources, domestic positioning remains heavy and global money is unlikely to return until strike headline risk diminishes. Even if QE3 remains supportive of SA resources - we prefer to own both the precious and cyclical theme in Russia/CIS or the rest of Africa. (Deep Breath everyone...: - not sure what you mean - do mail me if you ahve time paul.murphy@ft.com) Block Anglo American PLC (AAL:LSE): Last: 1,781, down 32 (-1.77%), High: 1,800, Low: 1,777, Volume: 676.87kBlock Oh, and we've lost another platinum CEO this morning.Block Fourth this year, I think.Block Aquarius Platinum Ltd (AQP:LSE): Last: 43.50, down 4 (-8.42%), High: 45.00, Low: 42.00, Volume: 2.16mBlock (Nobby - what were you seeing when you "couldnt get in? - lack of streaming?) Block Stuart Murray resigns with immediate effect from the top office.Block Though will remain hanging around until 31 March 2013 to facilitate an orderly handoverBlock And there has been some suggestions that his heart wasn't in the job for some time.Block Sorry, distracted. Citi hints at the "he's been walking out the door for a while" angle.Block Stating the obvious, first, Mr. Murray's departure is very bad news for AQP, in our view. Stating the less obvious: we believe his departure will be bad news in the short term but not necessarily in the medium and long term. There had been concern amongst investors that Mr. Murray was almost an "absentee CEO." The share price is likely to be hit hard on this but we continue to rate the stock Buy. Once the group management is re-set, we believe that the market will focus on the fact that the Mimosa mine in Zimbabwe is usefully placed outside of the current labour turmoil in South Africa and is a low-cost mine. We now have the CEO of Lonmin out action due to a serious illness and the CEO of AQP gone. The endless strikes and pressure on all CEOs are beginning to tell. We see the resignation of Aquarius Platinum's CEO as a negative since Mr Murray has not only been at the helm of the company since 2001, but he has also held the company together and kept AQP's Kroondal in operation during the recent turbulence in the PGM market. He was also one of the first CEO's to temporarily shut non-profitable businesses as PGM prices fell earlier this year. Cash conservation still in focus Our main short-term concern on Aquarius Platinum has been that the company could continue to lose money at the FCF line. Without working cap inflows we still believe that the company could come under cash constraint in calendar 2013. Aquarius Platinum next reports its fiscal 1Q13 results on 23 October. (Mo again - pretty much so. But important changes to the streaming tech) Block Oh, and Goldman ....Block We are terminating coverage of Aquarius Platinum to better allocate our resources. And who can blame them there?Block So what else is on the move?Block Been hit hard this morningBlock All the midcap engineers getting smashed on it.Block Another victim of the steel problemsBlock Yeah, this is engineered ceramicsBlock In other words, crucibles.Block So, not great news for Morgan Crucible.Block Morgan Crucible Co Plc (MGCR:LSE): Last: 255.00, down 24.5 (-8.77%), High: 269.68, Low: 251.80, Volume: 642.92kBlock Cookson Group PLC (CKSN:LSE): Last: 530.50, down 84.5 (-13.74%), High: 550.00, Low: 500.00, Volume: 3.74mBlock So this is an old fashioned "materially below expectations" profit warning.Block Material = 20% in city speakBlock Significant = 10%Block (@Deccers: see earlier comment about canoes not floating.) Block That tends to be the rule, yes.Block Blaming an "uncertain and difficult-to-predict" universe.Block Engineered ceramics is 63% of group salesBlock And it's not just steel. Foundry business across the board is slowing.Block That's autos, wind power, mining, construction ....Block Oh, and they're shutting down solar capacity in ChinaBlock Asset write-down to the tune of £16m. Restructuring costs of £1m.Block It's all quite ugly, really, and not the ideal conditions to progress with a breakup of the company.Block Nevertheless, the breakup continues.Block Here's Citigroup's response.Block Profit Warning - Cookson has issued a profit warning this morning, guiding for a "materially below expectations" full year performance for the Group, based on depressed outlook in its Ceramics businesses. We cut our 2012E EPS forecast by 10% to 61.9p from 68.9p. We also cut our 2013E and 2014E EPS by 6% and 3% respectively. For our full forecasts see pages 3-5. We also reduce our Target Price to £6.50 from £6.75 based on our lower forecasts. Engineered Ceramics Suffering Widespread Weakness Division - Engineered Ceramics (c60% of Group sales) has seen widespread weakness. The steel related business appears to be down c6-7% in 2H relative to 1H with weakness especially in Europe and South America. The "normal" September seasonal improvement has not materialised. The Industrial Foundry business appears to have been even weaker, down c10% in 2H on 1H. The Fused Silica business which made c£5m of losses in 1H was previously expected to break even in 2H, but also appears to have suffered from weaker trading and now looks set to record £2-3m losses in 2H. Management Uncertain Over the Outlook - While a solar crucible plant in China is being closed, other cost saving actions are more limited at this time. Management is unsure whether this is a phase of destocking following some 1H over-optimism in the customer base, or a more permanent step down in demand levels. Other Divisions and Cash Flow are In Line - The outlook is unchanged for Performance Materials and Precious Metals Processing divisions, suggesting a performance in line with our expectations. Cookson also sticks to its net debt outlook to reduce significantly from £461m at 30 June 2012, and we continue to see year end net debt nearer to £350m. Demerger Still On Track - The strategic review was said to be is progressing well, suggesting continued progress on the demerger process (to separate the Electronics business). Given an announcement is expected in the next 1-2 months we believe it may even be possible to complete it in December. In our view, only a further significant weakening of trading would be likely to derail the process now. Interesting last line, that.Block Demerger continues unless trading continues to stink.Block As for the rest .......Block Bodycote PLC (BOY:LSE): Last: 395.70, down 15.4 (-3.75%), High: 404.00, Low: 394.49, Volume: 179.06kBlock Spectris PLC (SXS:LSE): Last: 1,750, down 50 (-2.78%), High: 1,775, Low: 1,740, Volume: 52.42kBlock Here's Harry Phillips of OrielBlock For the sector, the immediate read across is Morgan Crucible given its solar related/renewables in China. Elsewhere, IMI and Bodycote on the truck reference but we have spent a great deal of time with Bodycote ahead of our initiation last week and IMI was in robust form on Thursday at the capital markets day. Emerson referred to the economic backdrop as choppy - the implications from Cookson will not be uniform. IMI PLC (IMI:LSE): Last: 951.50, down 19.5 (-2.01%), High: 961.11, Low: 947.00, Volume: 207.01kBlock Cheers for all thatBlock So. What next? Everything's down so it's a little tricky to pull out any features.Block (Nobby - noted - Pettis something of a star) Block You mentioned reckitts earlierBlock What's the the story there?Block Well, it's a Businessweek story really.Block Not price sensitive, in the short term at least, but one that's worth reading nevertheless.Block As an insight into corporate culture.Block Basically: how do you sell something to someone who doesn't want it or need it?Block By Matthew Boyle Oct. 8 (Bloomberg) - When Reckitt Benckiser Group Plc brought its Veet hair-removal cream to China, sales were sluggish. The problem: Most Chinese women don't have much body hair, and those who do didn't worry about it. So the company came up with a new marketing plan. Instead of simply explaining what Veet does, Reckitt Benckiser introduced ads that equate hair-free skin with health, confidence and "shining glory." In the process, the company has helped make many Chinese women self-conscious about every stray follicle. "It's not how much hair you have, it's how much you think you have," Aditya Sehgal, the company's China chief, said by phone from Beijing. If your concern level is high enough, even one hair is too much. Veet has become Reckitt Benckiser's fastest-growing brand in China. As the company's growth slows in Europe and the U.S., Asian sales of hair removers are rising 20 percent annually, Euromonitor reports, almost double the rate of women's razors and blades. And it goes on like this .....Block "We are not here to remind the Chinese how much hair they have," Sehgal said. Our job is to talk about the fact that beautiful smooth skin is critical and grooming is critical. Women make their own conclusions as to what that means. Now, you'll remember this is the same Reckitt that last month stopped selling Suboxone tablets (not patent protected) Block In favour of its Suboxone film (patent protected) Block So the general plan is to turn Chinese women into American womenBlock Yes, basically. Because it's good for Reckitt to promote hairlessness as equating to health.Block Now, I'm not drawing a parallel here with their heroin substitute ......Block Except, perhaps, I am a bit.Block The pill were withdrawn on some decidedly .... open to criticism .... data about safetyBlock Data which only came to light after a decade of selling the pillsBlock And was released to coincide to the day with Reckitt calling for the FDA to ban all other firms fom selling pills as well.Block Now, I'm not a bleeding heart liberal usually .... But ......Block Might it be time to ask some questions of Reckitt's corporate culture?Block This kind of stuff doesn't sit well.Block Perhaps they are not paying their chief executive enough?Block Not as much as the previous guy, certainly.Block Reckitt Benckiser Group PLC (RB.:LSE): Last: 3,641, down 1 (-0.03%), High: 3,642, Low: 3,611, Volume: 141.14kBlock Can we go to Europe briefly?Block If we must. Briefly.Block This is after a Reuters story saying it is going to spin off its Fnac unit.Block Float it or sell it.Block Fnac stands for Fédération Nationale d'Achats des CadresBlock National Shopping Federation for ManagersBlock It's like the French version of HMVBlock What this Reuters story doesn't sayBlock is that this story was actually broken byBlock Le Journal du DimancheBlock This is poor form on Reuters" part - and it's been doing this for years.Block A scoop appears in - say - Le Journal du DimancheBlock So, overnight, Reuters Indian team do an aggregation job on the story and cite the original story.Block Then some Reuters bod comes to work in London in the morning. Makes one call to the felt, gets the story re-confirmed - and then publishes it as an apparent Reuters scoop, citing "a source familiar with the matter."Block Really it should be citing stuff we read in Le Journal du DimancheBlock Very poor form. And I'm going to make a point of pointing this sort of shabby stuff out every time I see it.Block In the internet age there is no excuse whatsoever for failing to cite the publication or newswire that first reported a story.Block No excuse whatsoever.Block Oh, hang on, maybe this is a Figaro story originally!Block Who knows. All we know is that this is NOT a reuters scoop.Block Yeah - it's a very good idea to highlight blatant story cloning.Block It's shabby, particularly for a newswire, which should be source neutral.Block Though, to be fair, I note no wire has yet cloned this soaraway AV exclusive I had on PPR from earlier this year ....Block Still waiting for THAT to happen.Block remains exclusive to BryceBlock Perhaps it'll be like your MetroPCS storyBlock Accurate, just three years too early.Block Actually, what we should mention here is that PPR is one of the firms that has been mentioned in the past as a possible acquirer of Alphaville.Block Old man Pinault raised the idea a while back, I'm told - natural idea is to put a luxury good group together with a media platform that reaches luxury readers.Block Like our blessed ROTR.Block Slightly academic, cos Pearson sees us as a valued and valuable business.Block Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.Block We're not for sale.Block Also this idea came from François Pinault and he's taken a back seat now. His son François-Henri Pinault in charge and I'm not sure he's a regular reader of ours.Block Anyway, just as insurance, if you see a watch advert on the site today, do give it a little click.Block Yeah, I'm sure they're real luxury consumers over there. Four Brietling watches on each wrist, the moaning gets ... Anyway, let's move on.Block Oh, speaking of RAWBlock Either way, Reader Beware.Block Which we were not .....Block You'll have caught the Exclusive to All Newspapers rumour on Saturday morningBlock About Imperial being bought by Japan Tobacco.Block How old is that story?Block Yeah, I know. Been round the block more than .....Block I think Norman Whetnell first published itBlock The most convincing theory I heard on Friday was that JT might plausibly take a stake in Imperial as a kind of pre-emptive moveBlock Though how, and why, were both unanswered.Block Anyway, I note it because Nomura downgrade IMPs today.Block Imperial Tobacco Group PLC (IMT:LSE): Last: 2,321, down 49 (-2.07%), High: 2,350, Low: 2,321, Volume: 657.50kBlock And their tobacco team is very good, generally.Block Also, have been very keen on the Imperial / JT angle in the past.Block I'll chuck up the front page, but it's nutso valuation work mostly.Block The takeover stuff is more interesting.Block After three years of outperformance for Tobacco (+75% vs the Euro Stoxx50 at -14%), we believe there is a risk of underperformance (at least on a 12-month view) as many of the drivers of the 19% pa average total shareholder return (TSR) since 2009 are less supportive from here. On average we see TSR over the next 12 months at just 3.4%, moving us to a Bearish sector rating, from Neutral. That said, we also see a need for the market to better differentiate the valuation of the major tobacco names to reflect diverse operational outlooks. We retain a Buy rating on BAT (12-month TSR 14%) and move Imperial to Reduce (TSR -1%) with a 3% target price cut to 2,166p. We retain our Reduce rating on PMI (TSR - 2.5%) with a target price +4% to USD 83.70. We cut our FY 13E EPS by c.2% for the three names. Since 2008, the sector EV/EBITDA on average has re-rated 14% from 9.4x to 10.7x and exhibited EBITDA growth of 6.3% pa. Combined with free cash flow to equity of 6.3% pa, we have enjoyed 19% pa TSR over four years. We see many of these drivers of value as now less supportive: · Regulatory newsflow (while ever present for the sector) risks a period of further depressing sentiment as anxiety over new initiatives (plain packs, ingredient controls) threatens to weigh on multiples. · Margin improvements account for 2% of the 6.3% pa average EBITDA progression in the past four years. With fewer cost-saving opportunities - especially for Imperial, less so for BAT - we expect less support for profit progression in the medium term from the group. · Average organic sales growth of 4.6% pa has relied on firm pricing dynamics in western Europe and volume in emerging markets. While still present, we believe tax structure trends (more specific tax and indexed linked) will limit pricing more so than the past. Heightening regulation in emerging markets could mute volume progression in the medium term. · Falling risk-free rates and an increasing equity risk premium have been supportive of a widening premium for Tobacco. We assume these variables are at best now stable, providing less fuel for outperformance. We expect BAT to outperform Imperial (offering an incremental 15% return over 12 months) based on: Rest of World operations discounting just 9.3x EV/EBITDA vs 13.5x for Imperial; margin expansion still supporting two year profit growth of 6.5% vs just 2.8% at Imperial; less exposure to regulatory update risk over the next 12 months; and development of multiple support from prospective Next Generation Products - which are not yet in Imperial's plans. We see Imperial EV/EBITDA derating from 9.9x today to 9.0x over 12 months, whereas we assume BAT holds the current 10.1x level and enjoys a clear 1.0x multiple premium to IMT by year-end. British American Tobacco PLC (BATS:LSE): Last: 3,278, down 31.5 (-0.95%), High: 3,299, Low: 3,275, Volume: 592.07kBlock And here, if you don't fancy making sense of that lot, is the bid angle.Block What about the big deal? Not yet, not just yet! Our return to a Reduce rating on Imperial revisits the risk of missing out on a large-scale consolidation move in Global Tobacco. We have been supportive in the past that such a deal was feasible, attractive to all parties and therefore carries a high probability of occurrence. None of these views have changed. As we have outlined in the past, a joint offer primarily between BAT and Japan Tobacco could see the volume of Imperial split neatly, with brand uniformity maintained (ie, key brands like Gauloises and Davidoff residing with BAT and others like West and Fortuna and JPS sitting with Japan Tobacco). What we feel more relaxed about (in terms of our Reduce for now on Imperial) is that any such transaction is not likely to come forward for at least a year now (famous last words perhaps!) Our logic is: 1: Japan Tobacco has yet to see the government sell down its stake in the company (from 50% to 33%). We see this event happening now sooner than 1Q 13. Only after this step would we see Japan Tobacco feel more certain on its level of participation in the sell-down and refocus again on the development of operations. 2: With the uncertainties through 2013 regarding the proposed EU tobacco regulation directive - and amendments to that proposal - we regard it as prudent to await full clarity on the plans for EU-wide regulations in the medium term ahead of a large investment in EU tobacco. 3: If our assumptions on multiple de-rating risks for Imperial are correct - based on our concerns regarding market share and relative pricing pressures - we see any buyer of the name waiting until the base value is more fully realised in order to ensure an adequate retention of value creation from any premium. (@Nobby: what does Imperial's strategy have to do with whether or not they're bought?) Block (@Yogabba: do you type faster than you read? May I suggest a career as a spread better?) Block thanks for all thatBlock Oh, and thanks for all the live testing on the right. To reiterate ...........Block It really is useful if you take a screenshot and tell us what you're using.Block You'll understand, I'm sure, that we're not able to Quantum Leap onto your desktop and personally bugfix whatever idiosyncratic problem you are suffering from.Block We havent mentioned Michael Page yetBlock Another profit warningBlock Yeah - mild, but still a profit warning.Block Consensus coming down 2-3%Block In response to the comment that we're running "slightly below current analyst expectations"Block Michael Page International PLC (MPI:LSE): Last: 359.00, down 6.1 (-1.67%), High: 359.90, Low: 343.80, Volume: 995.50kBlock Net fees are the disappointing bit.Block Someone was telling me about how the classic head hunter model was broken, but i cant for the life of me remember the detailBlock Rabble may be able to help on thatBlock Don't really have head hunting in journalism so have no fi9rst hand experienceBlock When briefly between jobs, I signed up with a couple of white collar agencies.Block Not impressed, I have to say.Block They seemed very keen to chuck you in for basically anythingBlock (No surprise there, I guess.) Block And had a habit of collecting clients like Pokemon cards.Block So anyway, back to Page .....Block Ah - Cazenove's just off the conference callBlock Saying it was rather gloomy.Block Michael Page (Neutral), the Q3 trading statement conference call has concluded. Management said that by the comment "slightly below current analyst expectations" they mean a 2% to 3% reduction to Reuters/Bloomberg consensus. Generally, the call was negative with management mentioning a continued slowdown in most countries. For 2012 we have changed our, below consensus, EPS from 13.5p to 13.8p. In 2013E, our EPS is decreased from 17.9p to 16.7p This is from Robert Plant (not that one) Block In the outlook statement, there had been a comment that "activity levels improved towards the end of Q3," however, management said that by this they were pointing towards the usual improvement in September that occurs after the quieter summer period and that trading had gradually weakened year on year. Management also said that activity levels did not mean that jobs were being converted as companies can advertise jobs without completing on the hiring. Europe, Middle East and Africa (39% of gross profit); organic gross profit declined by 7.2% in Q3 compared to a 2.5% decline in Q2. Management said that Southern Europe was especially tough. Northern Europe was better but even Germany had seen a moderation. In France, the largest country (13% of group gross profit) gross profit declined by 9% organically after a 2% decline in Q2. In France, management said that the permanent business had been impacted more than the temporary business and Paris had been weaker than the regions. There was less confidence in the French market than there had been and hiring decisions have also been impacted by hiring laws. All the major countries (including Spain and Italy) are profitable, with some of the smaller countries being loss making. I suspect the ROTR are correct. There's progressively less need for headhunters for middle-rank jobs.Block Internet's disintermediated.Block (Is that a word?) Block So Hays is due tomorrow .....Block Slightly different client listBlock Far more exposed to AustraliaBlock Oz counts for 60% of its EBITA, apparently.Block (Ian - do share, cautiously) Block Even though costs are tilted towards the UK.Block Hays PLC (HAS:LSE): Last: 75.95, down 2.7 (-3.43%), High: 76.90, Low: 75.25, Volume: 2.77mBlock For Hays, any slowdown is probably easier to cap with job cuts.Block I think we are doneBlock Sorry for the teething problems this morningBlock And thanks for reporting stuffBlock (@Ian H: It'd be AMAZED if that were in any way financially significant.) Block Crazy Ivan - good idea on the time stamps - we will look at thatBlock (@YoGabba: I'm not paid enough to read the BAE weekend press coverage in full. Sorry.) Block Yes - thanks again for testing.Block right - we are offBlock Back tomorrow at 11amBlock