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Markets Live: Thursday, 15th December, 2016

11:02 am BE11:02amHey. Hello. Hi. Morning. J L Morning BE11:03amWelcome to Markets Live, FT Alphaville's daily typing and junk. Patience Good morning all. BE11:03amPortrait then. 11:03 am BE11:03am BarneyBear Morning. Today (or Tonight) is apparently the biggest day for office Xmas parties this year... BE11:03amBut don't look at it! BE11:03amSeriously. Don't. 11:03 am BE11:04amDon't click this link either! BE11:04amhttps://www.ispot....opdivo-longer-life Gross Loydman god morgen BE11:04amYou remember Opdivo, right? 11:04 am BE11:04amOr nivolumab, to give it its real

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Hey. Hello. Hi. Morning.

J L Morning

Welcome to Markets Live, FT Alphaville's daily typing and junk.

Patience Good morning all.

Portrait then.


Markets Live: Thursday, 15th December, 2016

BarneyBear Morning. Today (or Tonight) is apparently the biggest day for office Xmas parties this year...

But don't look at it!


Seriously. Don't.


Don't click this link either!

Gross Loydman god morgen

You remember Opdivo, right?


Or nivolumab, to give it its real name.

Residual BMS's broken drug?
CommentGoesHere Morning. I've seen that ad, it's the worst ever example of US pharma ads

One of those potential blockbuster immuno-oncology pills, or immunicorns.

Pharma In what way is a drug not chemotherapy?

It's the one that failed a trial for first-line treatment against lung cancer a couple of months ago.

CommentGoesHere The list of side effects (including death) goes on for an almost comically long time

You remember? The CheckMate-026 trial. Showed it was worse than platinum chemotherapy.


Life extension of 4.2 months, versus 5.9 months for chemo.


Though nivolumab is approved in the US as a second-line treatment, hence that advert you shouldn't watch.


It's a two-minute commercial where 83 seconds are spent on the side-effect disclaimers.


It works with your immune system. [Narrator pauses. Flattens voice Opdivo can cause your immune system to attack normal organs and tissues in your body ....

Opecmoney Goodmorning. Anything on Petrofac?

Oh, and here's a website you shouldn't visit:


Why not?


Because of the Cancer Act 1939, that's why not!


Markets Live: Thursday, 15th December, 2016


Markets Live: Thursday, 15th December, 2016

Paper Chase Morning. I see DBK is now more or less a double-bagger since the historic buy recommendation.

Pre-war legislation, still on the statute, to avoid unscrupulous companies preying on the desperation of terminal cancer patients.


Desperation like this:


Clinic hopping, gobsmacking sums of money, false hope ....

vlade @Paper Chase - well, maybe they can get the money lent to Trump to count against the fine?
Viking1 Anyone seen anything on RTN / sector ref the Punch takeover
Paper Chase @vlade It wouldn't totally surprise me, given the general insanity of everything.

It just occurred this morning ... we have fuss every few months about imposing an internet firewall on the nation to defend ourselves from terrorist propaganda, peculiar grumble flicks and so forth ......

Residual Yeesh, does that mirror article not read a bit like sponsored content? That allowed?
Pharma #Test for BoncoeurLeft side scrolling fine for me in Chrome (49.0.something MacOS)(As Lemmy said yesterday, what doesn't work is scrolling if you move up; you need to manually go back to the bottom for it to resume. Only way it could work really, as otherwise new content would constantly shift you down)

..... But no one's mentioned blocking medical propaganda. Yet.


Anyway, back to the day job.


Where to begin? Well, I guess there's Punch.

Punch Taverns PLC (PUB:LSE): Last: 182.50, up 5.5 (+3.11%), High: 183.00, Low: 175.00, Volume: 581.13k

Nothing on the tape yet, but I've a suspicion that will change quite soon.


Heineken deal looks done and dusted.

urgeview Fwiw, BE, a very good friend of mine who has stage 4stomach cancer recently went to that Hallwang clinic.....he also spent around 400k on his treatment over 3 months...sadly he passed away .I doubt that story would make it into the Mirror

One could expect an update on that before we sign off.


Maybe we'll also get an update on Sky .......

Sky PLC (SKY:LSE): Last: 979.50, down 4 (-0.41%), High: 985.50, Low: 975.50, Volume: 3.01m
Lemmy Unusual move for Heineken?

........ though that's more of a procession at this point.


There's quite a lot of sellside around arguing that 21C should bump.


Polo Tang at UBS, for instance.


Press reports are suggesting Fox’s 1075p offer for Sky will be done via a scheme of arrangement meaning that Fox will require acceptances from 75% of the independent shareholders (75% of 60.9% = 45.7% of the total shares) at an EGM vote. The outcome of the EGM is binding on all shareholders meaning there would be no minorities if approved. A scheme of arrangement requires the recommendation of the independent board of directors of Sky but also means that shareholders representing 15.2% of total shares (25% of 60.9%) could potentially block the deal.


While the independent board of directors for Sky has agreed to the offer price of 1075p, the board can change its recommendation at any time up until the formal offer documents for the EGM are published, typically after regulatory approval for the deal is granted. Our view is that EPS for Sky is about to inflect after a period of heavy investment and that EPS should reach more than 100p by 2020E. Good Q2 results in January 2017 showing an inflection in UK KPIs, as well as satisfactory outcomes for the Champions League and Serie A rights auctions (likely in calendar Q1 and Q2 respectively), could give Sky shareholders more evidence to push for a higher offer price.


Leverage at Fox would be high at 3.6x on a PF basis as at June 2017 (vs target leverage of 2-2.5x). However, with profitability at both Fox and Sky set to ramp over the coming years, leverage should fall to 2.2x by June 2019. Were Fox to increase its offer by 100p, this would raise PF leverage by 0.1x. EPS accretion for Fox could be mroe than 15% for FY-18, all else equal, with half the accretion coming from removal of double-taxation on the income stream from Sky. We note that S&P recently put its BBB+ rating on Fox on CreditWatch negative.


We raise our PT for Sky to 1370p from 1310p as we factor in upside from Sky’s recent launch into mobile with our longer-term EBITA estimates upgraded by 2-3%. Near term, there is upfront investment from the launch of mobile but the bulk of these costs was already implicitly embedded into UBSe/consensus. At a 1075p offer price, Sky trades on 16.3x calendarised EPS for 2017E falling to 13.4x in 2018E and 11.1x in 2019E.


And Louis Capital .....


Based on a 1075p deal and 789p deal break, it appears
the deal is currently pricing a 68% probability of success.
There is an element of upside risk to that based on the
real possibility of an increased offer.


Murdoch/Fox has not (as yet anyway) declared the offer
as “full and final” which would mean they would not be
able to increase further. This would seem to suggest Fox
may well be aware that an increased offer will be
required. Reuters this week cited “close sources”
suggesting Fox does not plan to increase its bid “for the
time being” as it has already reportedly improved on a
previous offer. However, its believed SKY may well push
for an improvement once a formal offer is tabled. Sunday
Telegraph reported that Murdoch had already rejected
offers for their Sky stakeThe report suggested these
bids came from Vivendi and VOD and that the Murdochs
had required 1800p per share to sell. Furthermore, SKY
traded as high as 1126p at this time last year. There also
remains a real possibility that activists may push for a
better offer.

Irrespective of its public positioning Fox is capable and
should make a higher offer. A quick glimpse at valuations
highlight that while Sky is trading at A PE of 15.7x, that is
still at a 20% discount to the sector multiple of 19.6x
implying a fair market valuation of 1,230p. Adding a
realistic but "low" bid premium of 15%, implies that the
fair value of the take out is around the 1,415p level, and
this is not even factoring in any synergies between Fox's
content portfolio and Sky's vast global reach and
customer base. We don’t expect a bid to come at those
levels however the argument is clear that at 1075p SKY is
bargain basement.

Lemmy 789p deal break? Surely a part of that price reflected the inevitable 21C bid? If the offer fails the price will crater, no?
BarneyBear Any comment on yesterday's deal which Burford Capital did? Seems to have put a bit of excitement into the share price....


Otter Hello Internet friends.
Call me Papi EURUSD @ 1.0435
Otter @Call me Papi Hurrah!

On Punch .... (/watch the tape!) .... yes, slightly odd from Heineken.

J L While we mention the drop of value in the pound since Brexit, the Yen depreciated by about 18% since US election..

Though before we get into sector readthrough we have to get over the great problem of how to value Punch's weird twin securitisation vehicle structure ..........


Punch is ridiculously cheap against NAV, arguably, but it's also quite unlike any other listed company. The bids have to be seen through that lens.

The Gifter EUR/ USD parity by Christmas and Dow above 20,000 looks baked in to me - hohoho

Barclays, a bull throughout, still thinks the bidders are lowballing.


Here's Barclays' equity side .........

Glipton I see The Standard are reporting that Ladbrokes Coral made the 1st move to GVC, offering themselves up for a reverse takeover, and GVC turned it down ahead of the triennial machines review. Strange move by LCL?

An announcement out earlier today revealed that Punch has 2 potential cash offers at 174p (from Patron Capital / Heineken) and 185p (from Emerald Partners). The FY17E EV/EBITDA for Punch at the offer prices are 8.9x and 9.1x. This compares with Enterprise Inns' current FY17E EV/EBITDA of 9.2x. Punch's EBITDA is being slightly depressed in FY17E due to the move to retail agreements and the re-marketing of lettings post MRO (Market Rent Only), hence why we use FY16E for our price target.

This potential realisation of value for shareholders has been a long time coming after the financial restructuring. We have consistently argued the shares are materially undervalued, albeit admittedly with this thesis tested most strongly in the immediate aftermath of the MRO decision when it looked like profits may fall sharply. In our experience, public market equity investors have occasionally been intrigued by the deep value case, but Punch has never quite recovered in the eyes of many investors who have memories of it once being a FTSE-100 company. We would note also that we do not base our price targets on what could be considered fair value in an M&A situation.

Should shareholders argue for more? In our view, we think a higher bid is warranted. Despite the significant percentage premium to the equity in both offers, they represent a relatively small premium to the EV. We believe these offers undervalue the assets given that the property assets are worth much more than the offer prices and the bids only value Punch roughly in line with Enterprise. We believe ETI should arguably trade at a premium given higher quality London assets, and well developed response to MRO, but valuation parity with a key peer hardly seems a knockout. High net debt certainly makes the equity valuation debate a challenge. Our upside case has a fair value of 293p (see our report 'Overlooked; PT increased to 180p', 09 Nov 2016). This is based on an EV/EBITDA multiple of 9.5x. We assume £144m for the non-trading property value, consistent with the company’s assessment of the value of these non trading assets. At this level Punch would only be trading on a slightly higher EV/EBITDA than Enterprise Inns. Finally, our blue sky scenario (also in research report referred to earlier), implies 460p per share. At this price, the company trades in line with its NAV, and we add in the entire £144m of non-trading property value. These values are admittedly much higher than either offer, and a bidder does not want to pay 'fair value', but bids at the proposed levels leave plenty of upside for any potential buyers, in our view.

Whilst the rest of the sector (ex-ETI) has not moved significantly on the back of these offers, it is a good reminder that in the face of cost headwinds and soft trading for the managed house operators, valuation support has to matter at some point. Despite these headwinds, there is still attractiveness in the sector from relatively secure cash flows, UK real estate ownership, and long term debt at (mainly) fixed interest rates.


And here's its structured credit side .......


Further to yesterday’s approach by Patron for Punch Taverns, we think it is worth highlighting that the bidders may add leverage to Punch B through beer supply agreements that are struck at prices above current levels. The Punch B offering circular does not imply there is a requirement to set prices based on cost as it says that “generally, as brewers and suppliers change wholesale prices these changes are reflected in revised prices set by the Punch Group.” Further, we note that prior to restructuring the Punch Group regularly supplied beer/product into the securitisations at levels that were below cost in order to avoid breaching trigger events.

Should Patron’s bid be successful, we would expect Heineken to be able to secure supply agreements for both the Punch A (which it would acquire) and Punch B securitisations (expected to be retained by Patron). It is possible that in order to reduce the upfront equity paid by Patron a long term supply agreement could be negotiated with Heineken at levels that are above current levels, which could put pressure on Punch B's cash flows and credit quality. This could be mitigated, though, by reduction in overheads / synergies from merging Heineken’s existing Star Pubs with Punch.

For Punch A, should the Patron bid be successful, we think there are a few scenarios for Punch A bonds. First, the prepayment of the class Ms and PIKs only with upgrade of the class As to investment grade. Second, full prepayment of the Punch A securitisation with the Punch A class As being prepaid at gilts plus 100 given Heineken's relative funding costs.


And from the Heineken perspective ....


... Credit Suisse, saying "UK boozers? Eh?"


As the dust settles following the ABI/SAB merger, Heineken's first consolidation move rather surprisingly appears to be to expand its UK pub estate. In the context of Heineken's UK business (c6% of EBIT), the strategic and financial rationale is sound, however at the group level it means the UK business would become its third largest market after Mexico and Vietnam, representing c9% of EBIT, and dilute overall group growth.


A deal would complement Heineken's existing c1,100, largely freehold, UK pub estate. In a competitive and low margin market, Heineken has made the case for vertical integration in the UK, noting cost synergies, direct distribution and a platform to seed innovation. We note recent comments that like-for-like growth in its pub business has been outperforming the industry, and its overall UK portfolio has been gaining market share.


Based on a 9x EBITDA, the implied acquisition outlay for
Heineken would be c€1.2bn (for the 1,900 pubs), which is underpinned by a €1.5bn valuation of the estate, and its net debt/EBITDA would rise by 0.2x. Factoring in conservative synergy estimates, we estimate a deal could be c2-3% EPS accretive. Heineken could re-finance some of Punch's expensive securitised debt and therefore be better able to invest in the estate.

article Any thoughts/comment on the 2 JE. Just Eat acquisitions reported this morning. regards
Mouselet Good morning financial people

And on to the rest of today's news ............

GVC Holdings PLC (GVC:LSE): Last: 645.00, up 30 (+4.88%), High: 654.00, Low: 631.50, Volume: 1.49m
Mouselet maybe next time I will remember to stick a stop-loss under things like my Japan investments :stoat:
Otter @Mouselet which japan investments best japan investments?
Glipton JE spending £240m on a competitor that they said they weren't concerned about at the time of the IPO due to their technological advantages is bizarre.

Bumps its special and guides towards the top end of expectations

Otter @Glipton when you tip Just Eat drivers in Denmark they are baffled and sometimes a bit annoyed

Though more interestingly, as noted on the right .....


Ladbrokes Coral approached GVC over a potential reverse takeover with GVC’s highly rated chief executive Kenneth Alexander — who said he expects GVC to “achieve further significant progress” next year — pencilled in to run the enlarged group.

But GVC was understood to be less keen about a tie-up as a government review of betting terminals is hanging over the potential profits from Ladbrokes Coral’s betting shops.


Dunno about that. Not exactly the story I heard.

Mouselet Otter: I have no idea (IE I was basically betting on the yen staying low) so used JFJ and IJPN. IJPN has I think been better

But then, GVC's keepers haven't been the most communicative, so who knows?


Markets Live: Thursday, 15th December, 2016

Mouselet ('I think' because the charts for investment trusts from random-charting-sites have the kind of data quality you would expect if you left the curation up to a group of drunken ferrets)

..... Here's Goodbody.

Otter @Mouselet I would like to find a lot of nice japanese stocks so I can justify being sent there to look at management

The group expects FY pro forma revenue and clean EBITDA is be at the upper end of current expectations (NGR: €852-885m and EBITDA: €202-205.5m).
The group has also announced that the special dividend it will pay for FY16 will be 14.9c (12.5p) up 49% from what was announced on November 3rd (10c).
In summary, CEO Kenny Alexander notes "The integration of is proceeding positively and ahead of our original expectations. We continue to look forward to 2017 with confidence and expect to achieve further significant progress".


This represents another positive update from GVC. Our FY16 EBITDA forecasts are currently at the upper end of the range so we see no reason to change. The underlying growth in the group remains impressive; particularly given the tough December comparative. The increase in the special dividend should also be well received and shows management’s confidence in the business. It also suggests the 50% payout guidance may be on the conservative side and underpins the stock’s potential as an income growth story going forward. We reiterate our BUY recommendation. Today's release should be well received given the recent relative weakness in the share price.


And Liberum.


(GVC LN) GVC has released a trading update confirming that "strong trading" has continued during Q4 and that it expects to report FY16 EBITDA and NGR at the upper end of guidance. In addition, despite having originally said it would take a dividend 'holiday' for FY16, the statement also says that the Company will increase the special dividend of €10c per share - announced in November and payable in February 2017 - by 49% to €14.9c.

In terms of trading, NGR growth has so far been +14% (at constant currency) in Q4 and therefore very similar to the 15% progression in Q3. Sports NGR was up 19% and Gaming NGR +11% on the same basis. The shares have been weak recently - partly due to reports of what we believe is unlikely M&A activity, certainly in relation to Ladbrokes Coral (LCL, SELL, TP 123p) - and GVC remains our top pick of the gaming operators given growth prospects in international markets and an attractive valuation; the P/E is just 12x in 2017.

Pharma @Mouselet, is the charity known as Yahoo! Finance not a reliable source?

We're not going to bother with the Fed today, right? The US folks did a standup job overnight.

Mouselet I've always fancied visiting Hokkaido, so Suntory is a must; Mitsubishi Heavy Industries should get you to Kyushu and maybe even to Tanegashima to see one of their rockets go up ...

We can, I guess, note that hawkishness = gold's getting crushed.

Fresnillo PLC (FRES:LSE): Last: 1,067, down 113 (-9.58%), High: 1,133, Low: 1,058, Volume: 1.17m
Randgold Resources Ltd (RRS:LSE): Last: 5,488, down 452.5 (-7.62%), High: 5,695, Low: 5,488, Volume: 544.41k
Polymetal International PLC (POLY:LSE): Last: 775.50, down 30 (-3.72%), High: 797.50, Low: 765.50, Volume: 1.15m

So glad I wrote up a goldbug argument for the paper overnight ....


,,,, meh. Live and learn.


Just Sell mentioned!

Just Eat PLC (JE.:LSE): Last: 592.72, down 4.78 (-0.80%), High: 623.50, Low: 591.50, Volume: 2.61m
Mouselet pharma: they believe JFJ.l traded at £136 a share on 13 January 2016, which is an unusual belief.
Otter Mitsubishi heavy made the special triangle ships used by our norwegian friends at PGS
Mouselet What an excellent ship (Ramform Titan/Atlas/Tethys)

Doing the Just Sell gambit

Otter Yes they are in my top 20 favourites
Mouselet I sort of assume that, if you want a special ship, you ask Mitsubishi Heavy. Unless you want a special ship with guns in which case BAE Systems are your very very expensive friends.
Pharma @Mouselet, ah - their belief that there is value in a web portal must have infected their finance data.

As in, trade assets between a clique of takeaway delivery operators to try and give each a strong enough market share that it might fall into the strict definitions of a monopoly .....


Today it's Delivery Hero

Otter The Bold and Brave Terns are very special they were done by Lamprell

Selling Hungryhouse, having just bought Foodpanda ..... Anyone want to make me spreadsheet of related interests here?

Mouselet Definitely special. Kind of an insult to the very concept of ship, given how many more legs they've got than 'ship' usually implies, but excellent things.

Big question: will the regulator wear it?


The idea here is to get a big enough market share that they can ease up prices at both sides of the trade, right?


Using the first-or-nowhere logic that's prevalent right now.


Seems to me that if the gambit works it proves it's anticompetitive, and if it doesn't it's just a stupidly expensive deal.


Here's UBS.

Otter They had to have legs like the famous wading bird the Tern.

Just Eat announced two acquisitions this morning. It is buying Hungryhouse in the UK for £200m (+ up to £40m) and SkipTheDishes in Canada for CAD$110m/£66m (+up to CAD$90m/£54m). The acquisitions will be funded with cash and credit facilities and some new share issuance (£6m). Just Eat had available cash resources of £95m at the end of June. The Hungryhouse acquisition will be subject to approval by the CMA. Assuming Just Eat keeps its 23.6x 2017 EV/EBITDA multiple, based on consensus numbers, we calculate no impact on the share price from the deal at the mid-points of expected EBITDA and deal values.


In the UK, Just Eat will buy Delivery Hero's Hungryhouse for £200m and a further £40m depending on performance until completion. Just Eat estimates that, by stripping out overlapping costs at an exceptional cost of £1m, it can generate EBITDA of £12-15m from the asset (2015 LBT: £15.1m). This results in a 13-20x 2017 EV/EBITDA multiple vs Just Eat at 24x and GrubHub at 16x, based on consensus numbers. Just Eat expects the transaction to be EPS accretive in year one. In a sample of restaurants by platform, we found that Hungryhouse increased restaurants on its platform between September and December after significant declines in restaurant count between July and September.


In Canada, Just Eat will buy SkipTheDishes for CAD$110m/£66m and a further CAD$90m/£54m subject to "strict financial targets being met." This represents a 4.7-8.5x 2016 EV/Sales multiple vs Just Eat at 10.5x and GrubHub at 6.1x (consensus estimates). Just Eat expects the transaction to be "moderately dilutive" to EPS in 2017 and 2018 before being accretive thereafter. SkipTheDishes grew orders by 186% in the 10 months to October 2016 to 1.6m.


("SkipTheDishes" ... Jees-o, Canada .... )


I look forward to the debates about UK market concentration over the next 12 months, and whether Just Eat really competes with the moped outsourcers like Deliveroo (note that management claim they don't, at least to investors).


Canaccord still Buy, of course.

Genny Savastano SkipTheStock
Lemmy If the gambit works then someone else comes along with an app and an offer to charge restaurants a few pennies less and pay drivers/riders a few pennies more?

JUST EAT is a highly cash generative business, with a clear strategy of using M&A to expand market share in its existing territories. Today's acquisitions, which we expect to be earnings enhancing in aggregate from 2017, look to be mostly funded from internal resources. The hungryhouse deal is expected to be EPS accretive in the first full year of ownership, with a pro forma EBITDA contribution of around £12-15m expected in 2017 thanks to material synergies with the existing business. It provides the group with an enlarged customer base and restaurant network, further entrenching what is a significant market share in the important UK territory, which on current numbers represents c.64% of group orders. The purchase price (potentially £240m in total) implies a maximum 16-20x forward EV/EBITDA multiple including synergies, and potentially a 7-8% pro forma EBITDA impact, based on management's guidance of a pro forma £12-15m EBITDA contribution in 2017. However, the timing of completion is uncertain, - it's subject to approval by the Competition and Markets Authority (CMA) and could take time to close, which will have a bearing on the actual contribution next year. On the other hand, the acquisition of SkipTheDishes is expected to complete today.
SkipTheDishes has contracts with over 2,900 restaurants and 350,000 active customers in the Canadian market. The business has posted very strong growth in 2016, with expected revenues of CAD23.5m (c.£14m), and orders growing 186% to 1.6m in the 10 months to October. There is little geographical overlap with JE's current Canadian operations. It’s expected to be moderately earnings dilutive in 2017 and 2018 given its earlier stage, but accretive thereafter.
These both look to be broadly sensible deals which should help shore up market share in two of Just Eat’s key territories, helping to drive economies of scale and strengthening the group's presence here. It’s consistent with management's strategy, and looks like it will be largely funded from internal resources, so at first glance a positive development for the business.


The shares trade on 22.0x 2017 EV/EBITDA and 35.4x earnings. Our 680p target price implies 25.4x EV/EBITDA.

Pharma @Lemmy, JustSell uses the "restaurants' " own delivery drivers. But your general point is of course valid.
Boncoeur Hello

(@Lemmy: I mean, that'll never happen. That'd likely require a company to operate at a loss just to take market share ... That'd have to be some kind of .... some kind of uber-company!)

Flaneur I heard on a TV programme last week that Britons eat out an average of 10 times a month. Thats almost 1 in 3 meals a potential takeaway!!! I can see why someone would want to elbow into this market its massive. (like the punters, I'd imagine)Seriously though, cant believe how much takeaway people buy.

What else, then?


Pick of the sellside is probably Sandy Morris at Jefferies.

Boncoeur @FlaneurL: you should get out more.
Otter @Flaneur was this just takeaway dinners, or did it include buying lunchtime sandwiches and boots 3 pound meal deals?
Pharma @Flaneur I read that New Yorkers eat out >15 times per week (meaning breakfast is included for many)
Boncoeur @BE: yeah US Macro Live was good.

Pretty amazing bit of research from Sandy this morning, working through a full Global Thermonuclear War model.

Flaneur @otter - not sure. was on a BayBaySay factoid program. It just said 'takeaways' and was illustrated by an family eating out of tinfoil....
Lemmy Pharma, you're right. Keep thinking of all these firms racing to establish a profitable monopoly that, if it is ever established, will invite others to unpick it using the same technology that helped create it

The conclusion is that BAE's probably up with events. The working, however, is quite something.

Greasy wheel Global Thermonuclear War - that's my base case
Boncoeur US Treasury 5yr yields join 10yr yields above 2%

In short, a Cold War scenario appears unappealing for all, in our view.


Not sure it needed the "in our view".


A step back. Crimea became part of Russia in 1783. In 1954, President Khrushchev transferred Crimea from Soviet Russia to Soviet Ukraine. His motives remain unclear (in the late 1940s, there was brutal civil war in west Ukraine; perhaps it was to strengthen Soviet control) and the legality of the transfer has often been questioned. In the 1950s, the population of Crimea was roughly 75% ethnic Russian and 25% Ukrainian. The scripted proceedings of the 1954 Supreme Soviet apparently repeatedly refer to the unity of Russians and Ukrainians (a sentiment echoed by President Putin at the 2016 Valdai Club). When we sought to understand why the EU’s words – channelled through NATO – are louder than its actions to date following the annexation of Crimea, we had no appreciation of the history. We do not know whether the history has shaped NATO’s response, but believe the current situation to be complex, poltically, strategically and financially.


Chilled Defence. If all EU countries increased defence expenditure to NATO’s target of 2% of GDP (and those above 2% remained constant), we estimate there would be a 38.5% increase from US$239bn to US$331bn. A lesser-known NATO target is that 20% is spent on equipment, a target that if met would see equipment spending rise by US$22.2bn or 46% to around US$69.6bn, according to our estimates. The major absolute increases would be by Germany, Italy and Spain. Turning to Russia, we have found conflicting reports on its defence budget. On 4 October 2016, a Moscow Times report pointed to a 2017 budget of around US$77bn. On 30 October 2016, the FT reported the draft 2017 defence budget set before the Russian parliament proposed a 27% decline to around US$43bn. Simple arithmetic shows EU-NATO defence budgets are 3x to 5.5x greater than Russia’s, yet Europe still leans heavily on the USA for military capability, or so it seems.

Boncoeur Another leg up for dollar in last hour.

And to zero in on BAE ......


We often feel too reliant upon BAE’s guidance and our guesswork when setting forecasts. In today’s detailed note, we start to build our forecasts by Domain – Air, Naval, Land and Cyber. The Air Domain is broken down primarily into: Typhoon, Tornado, Hawk, F-35, Defence Avionics and Weapons. We can attempt to forecast the probable ebbs (Typhoon, QEII aircraft carriers) and flows (F-35, Submarines and – eventually – Combat Vehicles), and areas of subjectivity, such as Surface Ships. In short, we envisage growth in the USA, regard the UK as flat, and believe Saudi Arabia/Oman/Kuwait to be stable in the medium-term with some subjectivity from 2018.

Patience @Flaneur - I find New Yorkers have a mean free path of 4 hours between taking you somewhere to eat.

We recognise it is possible to construct a positive big picture of rising EU defence budgets. We lean more towards a scenario of steady and slow increases, the focus initially on personnel and readiness. We question BAE’s ability to access higher EU budgets, other than through MBDA. Further, our review of EU energy security persuades us that a Cold War scenario could have profound negative repercussions (Germany sources around 39% of its natural gas from Russia and appears to have no plan, even in the medium-term, to reduce this dependence). More rapidly rising defence budgets could be a pyrrhic victory in absolute terms. Nonetheless, we forecast BAE to return to sustained growth from 2017. BAE has, however, almost reached our 600p price target, a valuation we deem fair.

BAE Systems PLC (BA.:LSE): Last: 587.64, down 1.37 (-0.23%), High: 589.00, Low: 580.50, Volume: 3.86m
Boncoeur Dollar index DXY highest since 2003!
Flaneur I'll see if I can find the linkn on iPlayer for tommorow....

And look at the time! There I was, just about to move into FX strategy but .....

Lemmy Lunch or FX strategy? Easy choice :-)
Boncoeur BofE?
Otter I had a nice time today. Thanks to all.
CommentGoesHere "Monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target. "


CommentGoesHere (No change to base rate, of course)
Patience Cheers all.



output to grow at moderate pace in near term, but slow from early 2017

chopper bear centrica?

Talks weaker consumer spending and uncertainty surrounding Brexit


GBK Deadcat might result in a slightly lower path for inflation

Boncoeur @BE: short squeeze rather than dead cat bounce

But will still overshoot the 2% target next year ..... Policy can go either direction .... actually, sod this, you can read it yourself.


(@Boncoeur: tomato / tomato.)

Boncoeur @BE: some people find this exciting.
J L Thanks all.
Boncoeur Geioffrey Yu says dollar is in overshoot.

(@Boncoeur: I envy them.)


And just for Chopper, here's JPM on Centrica.

Centrica PLC (CNA:LSE): Last: 229.50, up 10.6 (+4.84%), High: 231.80, Low: 220.50, Volume: 23.79m

CNA has published a trading update prior to entering its close period at the end of the month. Overall, the tone of the release was positive, including the following key points: 1) Adjusted operating cash flow is expected to be in the range £2.4bn-2.6bn (JPMe £2.27bn); 2) Group capital investment, including small acquisitions of less than £100m each, is now expected to be around £900m, below the £1m limit set as part of the group’s financial framework; 3) Efficiency savings increasing to over £300m as part of the group’s £750m per annum cost efficiency programme with like-for-like operating costs expected to be lower in 2016 than in 2015, having absorbed the effects of inflation, foreign exchange movements and additional investment in the company’s focus areas for growth; and 4) UK Home energy accounts broadly flat. As a result, the company expects FY adjusted earnings to be around 16.5p, which is above the top end of Bloomberg consensus and our JPMe 15.9p estimate


Must be bloody difficult for Centrica to try and beat expectations every quarter while making sure that British Gas doesn't do too well and end up on the front of the Daily Mail.


But anyway. We're over time. Thanks for joining.


Afternoon all.

Boncoeur bye
Lemmy Thanks Bryce and ROTR
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Bryce Elder
Bryce is a sporadic Alphaville contributor and has been the FT’s UK equities reporter since 2008. Before that he wrote about UK equities at Morningstar. Before that he wrote about UK equities at The Times. Before that he wrote about UK equities at Bloomberg. Before that he wrote about UK equities at AFX News. Before that he did not write about UK equities.

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