Friday , April 28 2017
Home / FT Alphaville / Markets Live: Monday, 13th March, 2017

Markets Live: Monday, 13th March, 2017

Summary:
11:00 am PM11:00amMorning Arlington Morning all PM11:00amWelcome to Markets Live PM11:00amBang on time at 11am Otter Hello Net-chums 11:00 am PM11:00amHave today's pick PM11:01am PM11:01amThat's Amnon Shashua Twattington-Burbage Morning Otter Soundbuy Morgen....... 11:01 am PM11:01amFounder of Mobileye VV75 Amnon making bank PM11:01amWhich may well be about to be taken over by Intel CommentGoesHere Mornin' All PM11:01amMobileye big into driverless cars, of course 11:01 am PM11:02amStory broken in the

Topics:
Paul Murphy considers the following as important:

This could be interesting, too:

Mark Thoma writes Is There a Case to be Made for Political Antitrust?

Mark Thoma writes Links for 04-28-17

Bradford DeLong writes Trade, Jobs, and Inequality Video

Menzie Chinn writes Monthly GDP Estimates and a Nowcast

PM11:00am

Morning

Arlington Morning all
PM11:00am

Welcome to Markets Live

PM11:00am

Bang on time at 11am

Otter Hello Net-chums
PM11:00am

Have today's pick

PM11:01am

Markets Live: Monday, 13th March, 2017

PM11:01am

That's Amnon Shashua

Twattington-Burbage Morning Otter
Soundbuy Morgen.......
PM11:01am

Founder of Mobileye

VV75 Amnon making bank
PM11:01am

Which may well be about to be taken over by Intel

CommentGoesHere Mornin' All
PM11:01am

Mobileye big into driverless cars, of course

PM11:02am

Story broken in the Israeli press -- TheMarker

Patience Happy Monday everyone.
OnYourRight Morning all
VV75 Should be Mammon as a first name after this deal..
PM11:02am

Huge deal: chip giant Intel Autonomous vehicle enters and acquires Israel's Mobileye's largest acquisition ever by an Israeli company. Mobileye Has a market cap of $ 10.5 billion, according to market estimates, Intel will pay for all shares Mobileye amount of 16-15 billion dollars. The two companies are expected to announce the deal in the coming hours. The two companies did not respond. TheMarker has learned that Amnon Ziv Aviram amusement and enter the workers at 13:30 to talk about the huge

BE11:02am

.............. Hm.

PM11:02am

ransaction. Mobileye shares plunge 32% pre commerce.

erlkin gm....when do the clocks spring in Europe? we've sprung in US
PM11:03am

So Bryce....

PM11:03am

Answer me this...

BE11:03am

..........................

PM11:03am

If machines struggle to translate hebrew into english...

PM11:03am

How can we possibly rely on them to drive our cars?

PM11:03am

Answer me that!

BE11:03am

Ah, this argument. I see.

BE11:03am

Likewise, how can we put men on the moon when we can't make a working printer driver?

BE11:04am

It's not really the same, is it?

Patience @erlkin - in UK, last Staturday night in March.
PM11:04am

Omg smile

PM11:04am

Great scoop for TheMarker of course

PM11:04am

Assuming that it is confirmed later

PM11:04am

Btw Mobileye shares have not plunged

BE11:05am

Yep, assuming it's true. And while I've no idea whatsoever about whether it is,there's certainly a wider logic.

BE11:05am

For the past year or so it's been clear that Mobileye, Intel and Delphi have been working towards industry standardisation.

BE11:05am

Where the auto makers are customers, not developers.

BE11:05am

Intel talked explicitly about this in July 2016, when it formed a partnership with BMW and Mobileye for the Intel GO platform

PM11:06am

Yep, remember that

BE11:06am

Which is also, I think, being trialed by Audi and Daimler.

BE11:06am

And in November 2016, you have Intel joined an existing Mobileye-Delphi Automotive partnership

BE11:06am

Aim to develop a low-cost system for self-driving vehicles, target delivery 2019.

doeswalk Can see ISO wadeing in there
BE11:06am

At around the same time Mobileye joined the HERE Live maps thing. Intel bought a 15% stake in HERE shortly after.

Michael Milkem Few shorts in Mobileye if I recall - Citron Research most recently
BE11:07am

The rather cosy relationship was always seen as a backstop to Mobileye's valuation. It makes sense as a strategic combo.

LongandWrong Come on guys! There is load of news and we are talking about Mobile eye?
BE11:09am

.... which was important as, per @Michael on the right, there have been some questions about whether the basically pre-revenue Mobileye should carry a $10bn market cap.

BE11:09am

However!

PM11:09am

TheMarker saying the take out price will be up to $16bn

A. M. Morning all
BE11:09am

Hm. As I say, dunno. We haven't matched the story yet.

hornblower big short squeeze in Telit, results low end of guidance, stock +16% at highs, now +8%. most shorted on AIM. any comment?
BE11:10am

But it seems @LongandWrong doesn't want to talk about strategic M&A .....

BE11:10am

Not when there are crappy defensive deals of broken companies to talk about.

BE11:10am

So let's move on to those.

Mouselet Good morning Internet people
PM11:10am

Hang on

LongandWrong AMECFW, RDW, GFRD and BVS to start off with
PM11:10am

We need to correct the machines tho

PM11:10am

Mobileye shares have not plunged

PM11:10am

The machines read down as up, but now...

Movement Any thoughts on the ES's re-print of the Exxon-BP story on Friday?
PM11:10am

The machine-readable HD Live Map allows the vehicle to “see around the corner” and consists of three rich content layers which are essential to automated vehicles making informed decisions on behalf of the driver.

You can call me Al We can't put men on the moon. We lost the the technology to do that in the early 1970s
PM11:11am

Dont know up from down, but can see round corners

PM11:11am

Markets Live: Monday, 13th March, 2017

Otter Maybe there will be a moment to let us know if anyone has published on our Emulsion Friends at Quadrise
PM11:11am

Stewards on that, i think

PM11:11am

NY quote

Dead Cat Bounce We never had it Al
PM11:11am

So, back to little old England...

Arlington maybe they confused up and down while reading the shares as well...
BE11:12am

(@You can call me Al: we didn't lose the tech, It's all in the Science Museum. We lost the fragile justification to chuck £1tn up the wall in pursuit of a flag on a rock.)

Amec Foster Wheeler PLC (AMFW:LSE): Last: 561.00, up 71.8 (+14.68%), High: 601.00, Low: 551.00, Volume: 6.66m
BE11:12am

......... So. Amec gets bought out at less than it paid for Foster Wheeler.

You can call me Al Patrick Moore deceived me! He was a kipper though.
John Wood Group PLC (WG.:LSE): Last: 785.50, up 33.5 (+4.45%), High: 812.00, Low: 776.50, Volume: 2.89m
PM11:13am

Rocket

BE11:13am

It's another Aberdeen, really, except without the egos to protect.

PM11:13am

Shocking that fact

PM11:13am

Amec gettin bought out at less than it paid for Foster Wheeler.

nichoman At least theres a bit of a premium with amec
BE11:14am

Simple cost-saving story, this. Stick two companies together with stock and sack a lot of people to bank the savings ..........

Otter @Al I liked Patrick Moore a lot and often passed his house. It was rumoured that he liked to sunbathe naked but I cannot claim to have seen this.
erlkin will i still need insurance if a robot is guiding my car?
BE11:14am

Which is considerable. £110m, or 18% of 2016 combined group EBITA

CommentGoesHere @You can call me Al - more interesting question is whether society would have the appetite to use that technology now, given the cost but also given the different attitude to risk
BE11:14am

At a three-year cost of £190m

Mouselet erlkin: yes, trees still fall on things
BE11:14am

Note that AFW separately sets out £100m pa of cost savings by 2019, though I assume including those would be double counting.

A. M. @BE: "synergies" are all the rage these days.
BE11:15am

And just in case Amec shareholders were considering rejecting, it also suspends the divi and launches a $500m rights issue.

BE11:15am

Except, of course, it doesn't have to now. That announcement only lasted half an hour.

You can call me Al Comment: I'd be very happy to send a kipper to the moon. Better still all of them.
BE11:16am

Let me get some sellside to spell out the rational, which is "costs".

BE11:16am

UBS.

BE11:16am

On first look, without synergies, we estimate the transaction could be 3-5% dilutive to Wood Group EPS in 2017 and 2018 (reflects the current AmecFW portfolio prior to divestments). As per the announcement, the combined group expects to achieve synergies of £110m (US$134m) although the timeframe is not specified. Wood Group estimates that the realisation of these synergies would give rise to one-off costs of approximately £190m (US$231m) in the first three years after completion. Assuming £60m of synergies in 2017 at a tax rate of 25% would suggest 2% accretion to current Wood Group 2018E EPS. The combined group will have pro-forma net debt of US$1.6bn, representing 1.9x prof-forma 2016 pre-synergy EBITDA. As announced, the net debt to EBITDA ratio is expected to trend to the preferred range of 0.5-1.5x by the end of the 18-month period following the effective date. As the combined group will have a lower financial leverage than AmecFW standalone (we estimate AmecFW end 2016 net debt to EBITDA of 3.3x), this should result in some interest cost savings.

BE11:16am

The oil services industries is undergoing significant change in response to the lower roil price environment. Contractors scaling up and reducing costs appears to be a reasonable response to pressure from oil companies to lower (c.f. TechnipFMC, Schlumberger acquisition of Cameron). However, there is some overlap in the Wood Group and AmecFW footprint, notably in the North Sea Maintenance business. We also have questions around the retention of key professionals post acquisition.

BE11:16am

And RBC.

BE11:16am

While materially above our AMFW valuation, we can see WG consolidating its market-leading UK North Sea business, expanding product lines in the US and possibly increasing the scope for asset sales. We have been fans of WG's longer-term strategic M&A execution and we choose that angle here over our standalone view on AMFW.

SoS @erklin: yes, hackers still get into systems
BE11:17am

I don't think it's been mentioned by anyone, but is there an antitrust angle on the North Sea?

PM11:17am

hmm

BE11:18am

I mean, it's all quite bleak news for Aberdeen.

BE11:18am

.... which, somewhat out of leftfield, has been the epicentre of M&A this past few weeks.

BE11:19am

Anyway, have a chart:

BE11:19am

Markets Live: Monday, 13th March, 2017

PM11:20am

What's that showing me?

BE11:20am

............. Amec daily market cap, in dollars. Red line is the Foster Wheeler acquisition was announced.

pfd where does cable go when TM hits the button? Rally? sell the rumour and buy the fact?
BE11:21am

It's flogging a dead horse to say that was one of the worst UK acquisitions in a generation ... but I'll say it again anyway.

PM11:21am

And so to housebuilders

PM11:21am

So Bovis smoked out by the Sunday Times, was it?

A. M. @BE: how does it compare to the brent/wti price?
BE11:21am

Half the story was, yes.

PM11:22am

The Redrow half

PM11:22am
alewis2005 @PM/BE Hebrew often leaves out all the vowel sub/superscripts (Nikud) when it's written down, which means that there's often a choice to be made about what word you're actually reading
BE11:22am

Kleinmanator then wrote the Galliford Try angle, seemingly from a position of comprehensive knowledge.

BE11:23am

To recap, Redrow's been told its proposal doesn't merit further discussion

A. M. @alewis2005: true, but the word for "plunges" and "shoots up" are quite different.
BE11:23am

... which is fair enough, as it was lowball.

PM11:23am

(alewis2005 -- interesting)

BE11:24am

125p of cash and 1.32 new Redrow shares, so at 814p per Bovis.

Bovis Homes Group PLC (BVS:LSE): Last: 895.50, up 67.5 (+8.15%), High: 911.50, Low: 880.00, Volume: 2.25m
alewis2005 @A.M. yeah I have no clue about that. I don't actually know Hebrew, I just know *about* it!
PM11:24am

903 live

BE11:24am

Galliford's offering 52.25% a 47.75% equity split

BE11:25am

So, yes, all share deal justified by cost savings. Stop me if you've heard this before, including recently.

BE11:25am

Though to be fair, the Galliford proposal is also hinging on giving Bovis competent management ....

BE11:25am

Here's Canaccord.

BE11:25am

We can see the logic of the proposed merger for Redrow and Galliford, if achieved at the right price. It could instantly increase the scale and reach of each company and deliver some synergies. An all-share deal would avoid gearing up the balance sheet and would also allow the shareholders of Bovis to enjoy the future returns on the combined group, and thereby help to avoid an overstretched premium being paid. In essence it provides each company with a landbank from which they should to be able to extract a better return.
Bovis is clearly going to argue that it will not sell out below what it believes the value in the land bank is. The key issue for Bovis shareholders is how an independent Bovis could improve margins and returns compared to what could be delivered by one of the interested parties as part of a larger combination. Bovis has re-iterated that it remains committed to improving its returns.

BE11:26am

We estimate the 2017E NAV per share of Bovis to be 792p. If the shares were to trade in line with similar medium-sized peers such as Redrow and Bellway on a 2017E average 1.45 times multiple, the implied share price would be c.1,150p. Bovis currently trades on a 2017E P/NAV multiple of c.1.05x, which looks fair value in the context of its current returns versus the sector average. Clearly, margins and returns should improve from here but how quickly and by how much is the key issue in deciding what multiple would be a fair one for the group. A 10% discount to the two peers mentioned would imply a share price of c.1,033p with a 20% discount implying c.920p. - somewhere between these two would seem a sensible level at which discussion would continue at this stage. Clearly, Bovis looks in play with a deal looking very possible, but not a foregone conclusion, assuming that one of the parties reaches a value that allows a deal to be agreed. We would not expect this to lead to a wave of consolidation in the wider sector, and see it as being very Bovis specific.

A. M. @alweis2005: given the nature of the mistranslation, one has to wonder about how it came to be.
BE11:27am

And Deutsche ...........

BE11:27am

Of the industry players, Persimmon, Taylor Wimpey & Berkeley mgmt have already indicated they have no interest; Barratt indicated it didn’t see it as a fit for its own strategy. We believe the geographical exposure and strong strategic land bank would better fit with a midsized player. For us we believe Redrow to be the best fit; with management succession at Crest making it a less likely participant, and Bellway having history of only growing organically; while other industry players such as Galliford Try and Legal & General could also have possible interest.

nichoman On the bright side one could at least say that these are not bubbly deals at all and are sensibly valued. On that basis suggests we are far from meeger mania
BE11:28am

.... Written on Sunday, pre Kleinman introducing Galliford, note.

PM11:28am

No one trying to suggest Bovis stays independent I guess

erlkin sometimes i feel capitalism is dying a slow death
PM11:28am

Bovis now 907p live is see

BE11:29am

It was Schroders who put Bovis into play, wasn't it?

BE11:29am

By leaking the merger proposal with Berkeley.

BE11:29am

Did I say leaking? Sorry. Typo.

BE11:29am

Back to Deutsche.

BE11:29am

In our liquidation value analysis published last month, we highlighted that Bovis could be worth up to over double its market cap. As such we believe there is scope for private equity interest. Last year it was reported in The Telegraph that a Chinese developer had approached Cala Group for a take-over. These talks subsequently failed, but it does highlight the outside interest in this sector.

A. M. @erlkin: how so?
BE11:29am

Bovis’ share price closed on Friday at 828p (mark cap of £1.113bn), equating to 1x 2017E NTAV, 0.9x 2018E NTAV, and the table below shows the group value at alternative multiples. Key to any valuation revolves around the margin achievable on the land bank, the level of additional costs to tackle the build issues and the impact on brand (for selling price and demand). The questions of premium of any take-over we believe will be strongly tied to the acquiring party. Those able to offer credible operational mgmt, and/or participation in the upside of Bovis through a share offering we believe could be required to pay a significantly less premium.

BE11:30am

While the ROCE of Bovis has lagged sector average since the downturn, and the profit warnings and the CEO’s resignation have impacted confidence, we do not believe Bovis’s issues are terminal. However with the search for the CEO only now underway, this implies the outcome of the strategic review may not be seen until Q4 17. In the meantime impact on selling and build rates may present uncomfortable data points mid of the year.

BE11:30am

(@erlkin: I admire your optimism to think it's slow.)

BE11:30am

And UBS.

Dead Cat Bounce Well said BE
Patience @erlkin - I like the analogy with 'the heat-death of the universe' - differentials shrinking.
DutchBrat Intel for Mobileye: $63.54 cash
BE11:31am

In theory, we believe consolidation amongst two mid-cap homebuilders makes sense in order to gain scale and achieve cost efficiencies. However attractive returns achievable on land limits options for cash transactions, in our view. As such, a proposed share merger at a premium to book looks reasonable (in the case of Redrow: 1.3x and Galliford Try: 2.0x vs. Bovis 1.0x undisturbed 2017E). We believe bids from other homebuilders are unlikely based on current good returns on land purchase: because of that, larger homebuilders will likely focus on organic expansion through land acquisition.

nichoman Anything on telit...one of most shorted uk stocks i think...squeezing on results
BE11:31am

INTEL TO BUY MOBILEYE FOR EQUITY VALUE OF ABOUT $15.3B

BE11:31am

Confirmed.

BE11:31am

Commentators, prepare your autonomous-car think pieces.

BE11:32am

That stuff I did earlier about industry standardisation is as good a starting point as any.

PM11:32am

So, Allied Minds

PM11:32am

Chris Silva suddenly departed from the CEO seat

PM11:32am

Non-exec stepped in as "interim"

PM11:33am

No one knows what's happened here

PM11:33am

No one outside the board and Neil Woodford

Allied Minds PLC (ALM:LSE): Last: 391.70, down 1.7 (-0.43%), High: 394.50, Low: 380.50, Volume: 47.91k
PM11:33am

Now, you might have expected to the price to fall sharply on this news

PM11:34am

Ive mentioned in the past that one of the big attractions of Allied Minds was it's military access in the US

Otter Now Nicola Stegor speaks
PM11:34am

That larger came through Silva, who is ex special forces

PM11:34am

Why he's gone -- I don't know

PM11:34am

But it certainly looks forced

PM11:34am

If you are looking for a 'wink' here -- I'm not going to give it

PM11:35am

Old rule: if you are worried about a stock you should sell it and stop worrying.

You can call me Al capitalism alive and well in Chisinau last week: scores of people selling second hand stuff - toys, biros,clothing (Anything)in the street. Shocking to see on margin of EU.
PM11:35am

However, since neither the company or its advisers have been able to offer any clarity this morning...

PM11:35am

We should give them something else to talk about

PM11:36am

Such as the on/off merger talks that Allied Minds has been having with IP Group for circa 12 months

PM11:36am

I am not saying Buy

PM11:36am

Ive no idea whether those talks will come to anything

PM11:36am

As i say, they've been under way for a very long time, according to usually spot on sources

PM11:37am

Why's SIlva gone? Dunno.

PM11:37am

Is this bad news? Potentially, yes very bad news -- since Silva is the guy who put the company on the end of the US defence R&D pipeline.

PM11:37am

So make your own mind up on this one

BE11:38am

............... Telit mentioned several times on the right.

BE11:38am

The Internet of Things play that divides opinion.

BE11:39am

.... which is a polite euphemism for "a lot of punters are short".

BE11:39am

And ... Results look okay!

BE11:39am

I'll let Berenberg summarise here. They go up to "buy".

BE11:40am

Telit shares have recovered strongly in the past year, rising by
almost 50% since their lows in 2016. While in part this is due to the strength of the USD, the company has also grown EPS at more than 20% organically. The company’s end-markets will always have a degree of volatility, but Telit has proven that it can deliver in a year of major transition. Strong exit rates coupled with soft comps in the first half of 2017 should lead to a good first-half performance. With the shares trading at a material discount to both peers and their five-year historical average, we feel risk is skewed to the upside. We upgrade to Buy and increase our price target to 380p.

BE11:40am

Telit’s services business grew by c35% in 2016 to deliver c$35m of revenue. Unlike product sales, this business has a number of key advantages: (1) it has no certification cots; (2) there is no manufacturing cost; and (3) the majority of revenues are recurring. Management is expecting a similar level of growth across the medium term. If it achieves this, that would imply $100m in revenue by 2020. With industry standard EBIT margins of c25%, the current $10m EBIT loss could reverse into a substantial profit in future years. While our estimates are still a long way from this scenario, we do feel that this business is perhaps being overlooked within the group. Telit has, accordingly, split out the full financials of that business and will report this unit separately.

BE11:40am

Telit’s hardware (ie product business) delivered $335m of revenue at a c17% margin. Within the business unit, however, the company has a mixture of legacy cellular and new lower-power Bluetooth and WiFi modules. We estimate that close to 90% of revenue is still cellular, which is growing at low double-digit rates, while Telit’s new product range is in 30% + growth territory. We believe Telit’s product positioning is now in good shape following recent M&A to help fulfil the medium-term growth prospects of the group;

BE11:41am

Telit delivered only 6% top-line growth in H1 2016. With H2 growth accelerating to c20% and management expecting no slow down, exit rates look set to be strong coming into 2017. Telit benefits from easy comps, so we believe it has scope to deliver a strong set of H1 2017E numbers, which will likely be taken well by the market.

BE11:41am

Telit trades on 7.8x EV/EBITDA 2017E. This is below its peer set on 10.5x and its five-year historical multiple of 9x. Using an equal weighting between these two multiples, we yield a price target of 380p.

GBKrona Nicola Sturgeon speech - doing nothing (on brexit) not an option. Pushing for choice for Scoland to become independent
BornCynic Anyone want to hear about my coach trip on National Express? I was also hoping that someone could explain how it makes money.......
Otter Yes. Please tell us Mr. Cynic
BE11:42am

.......... Just checking the disclaimers to see if they're house. Seems not.

GBKrona Scotland - seeking new referendum from next week.
BE11:42am

Now, because it's Telit, there are other views around.

PM11:43am

hehehe

PM11:43am

Go on - -share 'em

BE11:43am

....... okay, well I'm going to have to credit this to "sector watcher"

dorsetcontrarian interesting allied minds / IP speculation.....while we are in the space, any thoughts on Touchstone Innovations, formerly Imperial Innovations, which has seen a sharp fall from over £4 to £3?
PM11:43am

Goodness, ahvent heard from sector watcher for a while

BE11:43am

Hm ....... and just stick with the numbers. No point in inviting a fight.

BE11:44am

FYDec16 results aided by big rise in DSOs. Pricey. FY revenues in line at $370m (+11% yoy, split +6% H1 and +15% H2 due to product delays). EBITDA of $54.4m is bottom end of guidance ($54-59m). As expected H2 FCF positive $17.2m after H1 neg $9.2m. This is achieved as a very large H2 increase in receivables ($29.9m) is more than supported by a huge stretching of payables ($39m in H2). Note that trade receivables are up $33m yoy, nearly as much as sales ($37m). So crude DSOs rise from 77 days last year to 104 days. That does rather put the dampers on the top line stated 11% growth figure for me.FY FCF is $8m for a margin on sales of 2% (was 3% in FY14 and 2% in FY15). Net debt at b/s date was $18m. Net debt after Gainspan should be c.$26m (I suspect a lot higher on a weighted rather than snapshot basis) for an EV of upwards of $470m (FCF yield of c.3% on the last TWO year’s FCF combined!).

BE11:44am

So ........... you can see where that argument's going.

BornCynic @Otter Broadstairs to Blackpool took 12 hours. One hour to get into Victoria and one hour to get out of London. 30 litre diesel engines spending two hours on the streets on London. Why is the terminus in Victoria?
BE11:44am

But as I say, Telit does polarise opinion. There are two sides, and we're on neither.

PM11:45am

Neil Campling has pinged out a quick note on Mobileye

PM11:45am

Northern trust of course

PM11:45am

He's kicking himself

A. M. 12hrs?
PM11:45am

He dropped the company from his driveless cars basket last month

PM11:45am

If we look at our original AV basket the amount of M&A within the basket is quite remarkable in the nine months since inception: ARM bought by Softbank, NXP is being acquired by Qualcomm, Invensense is being bought by TDK, Renesas has completed the deal for Intersil. And now MobileEye is being bought by (NTCM Sell rated) Intel. The deal is valued at an equity value of c.$15.3B, or $63.54/share, (versus $10.5B market cap as at Friday's closing price) and is to be funded by cash on the balance sheet. Technology developments are rapid and the needs to offer integrated silicon/hardware/software solutions in AV technology are driving this consolidation in our view. As such, we wouldn't expect this to be the last transaction in this space.

PM11:46am

We had removed MobileEye from our basket as part of the process in updating stocks last month. Details of the same are here: https://us.aviatel...es-update-changes/. Our thesis behind the removal was that their technology was a good interim ADAS solution but we had doubts over the scale of the same to a full AV solution. We feel that open architecture for IP development (aka the Waymo/Google approach) has the potential to proliferate a number of operators whereas some OEMs seem fixated on trying to create proprietary solutions. The same makes MobileEye’s technology position potentially vulnerable given their focus is on embedding vision-based solutions within OEM offerings. We feel the same is an example of a well-placed technology for the early stage of AV technology solution development, but we are moving beyond that stage. It is possible that we are now moving to an industry that is being shaped by scale leadership with an open source platform at the heart of such scale, as we have seen before in other industries. The same is not MobileEye’s MO in our view. And Intel acquiring the company may provide much needed OEM relationships for Intel but we still find no evidence that Intel is addressing it's own shortcomings in auto silicon. The clear leaders in this regard remain, in our view, Qualcomm (in buying NXP), Infineon, STM and Renesas (all members of our current AV basket).

Forester 104 days to get your cash in.......not impressed. Count me out.
PM11:46am

The AV related sector remains ripe for further consolidation in our view. We remain buyers of our AV basket names. Our 15 basket stocks are by region:
Europe: ams, Imagination, Infineon, Melexis, ST Microelectronics
U.S.: Baidu, Littelfuse, Qualcomm, Sensata
Asia: DeNA, Denso, Jiangsu Protruly, Renesas, Sunny Optical, Tencent

Otter @BornCynic isn't the seaside much nicer at the broadstairs?
BornCynic The fare was £42 return. It cost the driver £700 to fill the tank (he gets Tesco clubcard points - don't tell HMRC) his salary is £150 per day. There were on average 9 people on the coach. The most common question asked of the driver is "how are you making any money".
PM11:46am

This is one that got away.

dorsetcontrarian broadstairs to blackpool - two of the most exotic holiday destinations the uk has to offer!
BE11:46am

Just recapping some of the bearish stuff about on Mobileye ....

adl684 what is going on with Capita? Decent rally today
BE11:47am

As in, its patent issues with STMicro and so forth.

nichoman Thanks for telit
Pseudonym @BC Maybe some services have more than 9 people on?
BornCynic @A.M. yep - they have to go to every stop even if there is no passenger to pick up / drop off. If they do not they are fined.
Forester @bc National Express? Up 3% today - did you spend a lot of money on board?
A. M. @BC: a form of torture to the rest of the passengers, no doubt.
BornCynic @Pseudonym - I looked at Victoria and no coach was packed other than the excursions.
BE11:48am

I'll not provide links. You can google it. Citron and SeekingAlpha stuff worth reading, though I think you need pro membership for the latter.

BornCynic Sell National Express :)
BE11:49am

Sellside wise, we have Homeserve.

PM11:49am

Oh yeah, what's the story there?

HomeServe PLC (HSV:LSE): Last: 530.00, down 30 (-5.36%), High: 542.50, Low: 504.50, Volume: 516.52k
BE11:49am

Jefferies negative.

BE11:50am

Also, irrelevant to the investment case, I'm quite negative based on how aggressively they push stuff on the back of utility bills.

BE11:51am

Had some nonsense through from Thames Water a week or two ago making ominous noises about how I might be liable for repairs to the external water pipes. As in, the ones under the street.

BE11:51am

Which certainly sounds like nonsense, and is a quite nasty way to sell expensive insurance.

PM11:51am

oh yeah, ive head that

Mouselet My local supplier has been trying to push special insurance for that as well
alewis2005 Every time I've been on a National Express bus in the last 8 years it's been an airport run at silly o'clock in the morning and it's been full
PM11:51am

Doesnt stand up. Remember my drainsgate issue last year?

alewis2005 Liverpool St -> stansted for £10
BE11:52am

Oh yes. I do.

PM11:52am

Water company liable up to the point where you pipes join the public sewer etc

Arlington @alewis2005 I tend to just sleep through the journey
doeswalk I've had it and to be fair it says up to the street doesn't it?
BE11:52am

Yep, figured.

A. M. Actually, it could be worse. Not so long ago, a 10mile bus ride took me an hour, because the route attempted to mimic a space-filling curve.
BE11:52am

Anyway, have Jefferies.

BE11:52am

With the US growth potential largely priced in, we worry about momentum in the UK over the next 12-18 months driven not just by a doubling of IPT but due to prescriptive changes mandated by the FCA on policy renewals. With some questions over the strategic rationale of recent digital investments and mixed history overseas we move to Underperform.

BornCynic @alewis - there must be some runs that make money and those airport runs are probably the ones.
BE11:53am

Onerous FCA mandated renewal procedure. In August last year the FCA released a policy statement to increase transparency and engagement at renewal in general insurance markets. Insurers must: 1) Disclose last year's premium at each renewal; 2) Include text to encourage consumers to check their cover and shop around for the best deal, and; 3) On the fifth renewal include additional prescriptive text encouraging them to shop around.

BE11:53am

Retention and Income per Customer could suffer. Homeserve's home cover policies are treated as an insurance product by the FCA, so will be captured. We believe the impact in the UK could be material due to the use of teaser rates, with year 1 rates discounted by as much as 90%. Given the large step up to a full price in year 2, as well as on-going inflationary increases for year 2+ customers, we expect this change could cause price increases to be contested more keenly. This change could negatively impact income per customer and retention as more discounting is required and customers leave.

BE11:53am

Questions over digital investments and new countries with US growth priced in. We had anticipated that in order to access the on-demand segment Homeserve would eventually develop something akin to an Uber/Just Eat solution. The £37m acquisition of Checkatrade in the UK and Habitissimo in Spain do not fulfill this requirement, in our view. New countries are being targeted but the track record here is chequered with Germany, Belgium and Australia having been exited. We believe the US has reached critical mass but now looks fully priced in with a blue sky scenario required for further upside.

Mouselet The route from the bus stop outside my house to the bus stop outside my office is in principle served by a single bus, which goes down the most congested street in Cambridge and via the major teaching hospital and is approximately fifteen minutes quicker than walking the 4.5 miles
BE11:54am

7% below EPS consensus in FY18F. In the UK in FY18 we adjust down our retention rate from 81% to 79% and reduce income per customer from +3% to -2%. The net result is a 10% downgrade to UK EBITA and a 3% downgrade to FY18F EPS which places us 7% below consensus.

A. M. @Mouselet: Cambridge is fairly cycle-friendly, as I recall.
Arlington National express has a horrible refund strategy, essentially you have to apply for the refund the day of the journey otherwise they wont consider it, and I had a cancelled journey at 11:40PM, so when I applied at 3AM the next day after getting home they refused my refund
Arlington Even though they cancelled the service on short notice, as opposed to me cancelling my journey...
Mouselet Indeed, but my bike frame had broken and it turns out to take five weeks from ordering a bike to receiving the fully-fitted-out bike
BE11:55am
Mouselet arlington: that sounds exactly the kind of thing that Rude Letters Via Mastercard were invented for, no?
PM11:55am

Why are our readers talking about coaches?

PM11:55am

Omg smile

Arlington @A.M. I live in Cambridge, can confirm the ratio of bikes to people is essentially 1.00
markopolo I thought NEX made all their money shipping US school kids about these days
PM11:55am

Coaches make me travel sick

Arlington @Mouselet indeed
Mouselet airport coaches are sometimes a bit less awful than trying to carry two suitcases on the Piccadilly Line in the morning
Arash Massoudi, FT Misys/DH Corp deal on the tape
Arlington They are very convenient, just poor customer service
BE11:56am

I've no strong opinions about coaches. If you want Jefferies to push National Express, though, I can quote that.

National Express Group PLC (NEX:LSE): Last: 371.00, up 11.5 (+3.20%), High: 373.40, Low: 366.90, Volume: 447.21k
Lefevre @BE, thanks for the Bovis stuff, FWIW I think Galliford have to be a strong contender - even on an all share basis. I listened to their presentation on 21 Feb via the web - one of the strongest presentations I have heard.
BornCynic @PM - apologies, I was interested in the business model of National Express......
Baz Bowleven, any comment?
A. M. @Arlington: been a while since I've been there.
BE11:57am

Another solid update from NEX - FY16 results comfortably ahead of expectations. While higher forward tax rates may largely mitigate the impact of that on consensus future EPS expectations, on a yoy basis, the group stands to benefit from considerable tailwinds over the next 2 years across FX, fuel, acquisitions and financing costs. Buy.

Conclusion: First take is another set of solid results from NEX. £170m PBT or £175 including c2c (the basis of our and we think market forecasts). That compares to Factset consensus at £167m/JEFe £164m. Divisionally vs JEFe – outperformance focused in N.America and Spain. With DPS +8.4% yoy to 12.28p (cons 12.1p/JEFe 11.9p) and FCF target raised to £120m (was £100m for FY16 – benefiting from c2c sale but we also assume aided by the tailwinds (incl. FX), this looks to be a good set of results. However, any upward pressure on forecasts likely to be largely offset by the higher P&L tax rate guidance (mid 20s for FY17 vs JEFe at 21% currently) due to new UK treatments around interest costs. Cash tax guidance though remains lower at 15% for next 2-years. Nonetheless, this should be seen as another robust update.

BE11:57am

Detail to note:

(1) Tailwinds for 2017 noted (financing costs, acquisitions [11 bolt-ons in 2016], lower fuel costs [£6m in 2017/£20m in 2018]).

(2) Spain risks continue to soften…..even if lost all concession renewals in Spain now falling in 2018 – only up to £3m of EBIT would be lost that year. Offsetting that will be €11m fuel benefits scheduled for Spain that year.

(3) Positive early signs from real time active rev mgnt systems reported (now fully installed across UK and Spain coach)

PM11:57am

Actually, i know one way National Express make money

alewis2005 @Arlington 1.0 seems low to me unless you're excluding dead (i.e. permanently chained to a rack) bikes
Pseudonym NEX is proof that trains are fundamentally inefficient, if you can run a bus paying tax on fuel, for the road, with such a tiny capacity cheaper than a train, then trains must be fundamentally bad.
PM11:58am

They allow their customers to get tricked into signing up for https://www.completesavings.co.uk/

BornCynic I doubt the bloke who wrote that has ever been on a coach............
PM11:58am

I'd like to get a list together of companies in the UK that use this supposedly discount shopping operation

Arlington @alewis2005 if I included dead bikes then humans would not be the dominant race in the Cambridge streets
PM11:59am

It's a global thing -- and its a really shabby business

PM11:59am

Loads of actions taken against it in the US

alewis2005 @Arlington for 30 weeks of the year they aren't, students are.
PM11:59am

PE owned.

PM11:59am

More deals coming through

PM11:59am

D+H Enters into Definitive Agreement to be Acquired by Vista Equity Partners
Vista to Combine D+H with Misys, Creating a New Global FinTech Leader

D+H Shareholders to Receive $25.50 per Share in Cash

Transaction Valued at an Approximate $4.8 Billion Enterprise Value

BE12:00pm

Oh, that's the Misys parachute deal we mentioned last week.

PM12:00pm

Yep

Arlington @alewis2005, true but almost every student tends to have a bike, unless they go to ARU where for some reason they all seem to have those hover boards that don't actually hover..
Residual @Pseudo - always had a feeling trains were much better built for freight - a la getting wheat from Kansas to NY
alewis2005 I was referring to humans :p
Lefevre How good a business is banking software these days? Fintech a threat?
Arlington @alewis2500 ahaha got you
PM12:01pm

Vista intends to combine D+H with another of its portfolio companies, United Kingdom-based, Misys, a leading global software provider for retail and corporate banking, lending, treasury and capital markets, investment management and enterprise risk. The combination will create a diversified FinTech market leader, with a global footprint and one of the broadest set of financial software solutions available to the market with approximately $2.96 billion (approximately US$2.2 billion) in revenues, approximately 10,000 employees, and 9,000+ customers across 130 countries, including 48 of the top 50 Banks.

PM12:01pm

But we are done

A. M. Anyways, cheers all.
Residual Watching a 50 carriage train loaded with logs and coal rumbling through an old station is joyous
Pseudonym @Residual Everything still ends up on a truck at each end, but I'll agree with it for bulk goods..
PM12:02pm

Thanks for sort of joining us on the right

PM12:02pm

And thank you Bryce

GBKrona thanks - busy day!
PM12:02pm

Back tomorrow at 11am

PM12:02pm

Bye

Arlington Hope you all enjoy the rest of your day
Soundbuy ta
Patience Cheers
Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
0 0
Paul Murphy
Paul Murphy is the founding editor of FT Alphaville and an associate editor of the Financial Times. He joined the FT in London in 2006 as development editor of FT.com, concentrating on the expansion of the online business. Prior to that, he served as the Guardian’s financial editor for seven years. He has also held senior positions in business journalism at the Sunday Business newspaper and the Daily Telegraph. Murphy is a graduate of the London School of Economics.

Leave a Reply

Your email address will not be published. Required fields are marked *