Morning Mumble: From Steel to Sugar, the Unbelievable + EVR the FX benefaction &...RCG + British Sugar (The David and Goliath of Sugar spats)

Good Morning,

Iran with no news = tank (poor pun I know). Those bulls being torched don't appear to grasp the simplicity of the statement. We'll keep it simple, just for those large traders in NY, having had 3 opportunities to close their burnt positions, are now doing so at a greater losses. If oil inventories and production are up, and demand lower, then the price will fall. Perhaps the market should have kept an eye on the 'well-count' rather than rig count.  Mental note, when applying for positions in large trading houses, in the hobbies put down "not know when to quit." What's $812M between friends.

Sticking with the theme of unbelievable, Evraz update the market today with a proposed tender offer of $375m. Does this company have no debt covenants? Would it not be cheaper to buy their debt? Within EVR's annual financial report investors would be wise to focus in on the 'slight' differential between 2013 and 14 in "equity attributable to equity holders of the parent entity" (that item otherwise known as shareholder funds), with a modest decline of $3,447B from $5,463B (2013) to $2,016B (2014), these figures include non-controlling interests. 

Evraz (EVR) net debt was reduced 11% to US$5.8 billion, which looked to be on the conversion and repurchase of debt in market. As with Kingfisher (KGF), never bet against buybacks in an appreciating market. EVR is mystifying save for the FX benefits of costs, so off like a rocket this morning. EVR's recovery since the height of the Ukrainian crisis has been legendary. With the market being pumped to sell at 10% premium to 187.70 pence, one can't help but wonder where the SP will hit soon, 206? Perhaps even the cap. 

As if the market needed reminding of the woes of British Sugar (ABF), along comes Real Good Food (RGD), with an award for reminding the market of the distressed nature of the global sugar industry. RGD have not only accused British Sugar of market abuse in respect of supplies to Napier Brown, back in 1988 and again 2014, but Napier Brown is now up for sale. Does a buyer want a business that is alleged to be impaired by its key supplier. Perhaps a sale would be wiser post any legal action/settlement between the warring parties?

With an interest in Pork Semi Meaty Riblets (Sternum Part On) (its not so appealing in the UK is it!) and all other food stuffs. One will remember that Napier Brown was proven correct in alleging that British Sugar had abused their dominant market position in 1988. This action resulted in a paltry fine of €3M (Euro) imposed on British Sugar. EU Commission Decision 18 July 1988 Napier Brown - British Sugar. One would be wise to read 'remedies' page 18, item 83. Its likely British Sugar (ABF) will have to make certain provisions, including the potential for a 10% fine of turnover. ABF's  British Sugar last reported turnover was £742m. 

Any actions bought by Napier Brown are not going to assist their bottom line, with debt increasing, any sale is unlikely to realise a true value. Purely on the basis of its long-standing and problematic history with British Sugar (their key supplier). The irony being, the offering could be more valuable to British Sugar than any other entity. All the proceeds are likely to go towards paying down the debt, near £36.3m (Net debt) at the last interims. Over to British Sugar to buy Napier Brown, which could perhaps be cheaper than any fine! 

ASOS (ASC) interim results are out, with no change in view from earlier this month, the market was welcoming the improvement in customer numbers (passing the 9M mark) and more importantly, active customers on the increase.  

ASC cash declined just over £9m in 4 months to £64.9m from 31 August 2014: £74.3m, admittedly up 76% on the comparative half, from £36,914m. Yet again, we see a deterioration in margins,  with retail gross margins down 270bps. The market will focus on the active numbers, local pricing (zonal pricing aka local currency pricing avoiding the customer taking the risk of FX movements) and group revenues being up near 14%. 

One has to wonder with the push in "the label" directory from NEXT, how competitive the UK market will become. Today's news was an opportunity to close longs and await a market reality, the market might realise sooner or later margins have been impacted by the introduction of zonal pricing, albeit with double digit revenue improvements. 

Atb Fraser

Morning mumble: Déjà Vu with Oil, Copper and Kaz! BAObab

Good Evening,

It’s been a busy period, so apologies as it was planned to cover more. The obvious happened with oil being impacted by inventory levels but with a significant amount of speculation anywhere near $60/bbl (Brent) and $48/bbl (WTI).

The market keeps waking up to the realities of another false dawn but over to the Baker Hughs rig count to install some more hope. The support levels are being defined currently, aided in part by storage not necessarily for speculation save for security of supply. The market is attempting to get ahead of itself with the speculation of drilling rig declines, what next? Well Counts via Baker Hughes? Surely not...

KAZ Minerals (KAZ) announced the audited results (for 31/12/14). Cuprum Holding have taken the crap and allegedly left the good within KAZ. As things are not going to plan, KAZ's backers have kindly been willing [waived] to forget about the covenants on gearing until Bozshakol Mine gets off the ground, so they continue in the same vein until 1st July 2016. Had KAZ added 5 days they could have timed it nicely Capital City Day in Kazakhstan. Not because of the changes in Capital City, but more so the need for capital! (Poor I know...)

KAZ's gearing has shot through the roof, more so than expected, in part due to the copper price falling more than those conservative parties thought! Shareholder funds written down, debt down a paltry amount, but gearing doubling as a % of shareholder funds and by EMC estimates surpassing the 70% as of today. It took the market quite some time to read a simplistic announcement and realise the concerns. With Kaz's currently cost per lb, they'll be hoping for better data out of China on the back of the PMI data.

Copper being the trade on PMI data, responded well to HSBC Flash China Manufacturing PMI. Copper's move mirror/validated factory production being well up and the Chinese New Year bringing fresh hopes of positives. Noteworthy the PMI data is contradicting the shipping, factory gate prices and company profits with production being up for the first time in 5 months. We should read into that that native demand is stronger than exports. 

Shorts were wise to cover on the China PMI data as the economy starts to benefit from the commodity drops. Copper is/was the weight of the PMI data, it responded well bouncing to just shy of $2.70/lbs (5% jump). The point to be wary of is housing is the driver for Chinese copper, it's stalling and this will dampen spirits in part. 

The market is now learning myopia creates volatility, as such speculators are looking further east of China to Japan and America for more solid copper indicators. China's issues are known and priced into the market. Japan and America are anticipated to spend, copper will trend (P+ve) for the long speculators, tapered in part by the Chinese known issues. Save for any issues causing risk off volatility. Additionally, the price is being supported by almost all the majors suffering from a drop in grades and alleged lower guidance (even fractional). 

With the gap narrowing in the supply and demand (for the interim), its wise to take profits. We are led to believe that the Zambian spat will be resolved shortly, so Barrick et al can ramp up production once again, putting some breaks on coppers appreciation. 

Baobab's (BAO) largest shareholder strikes and crystallises losses for every long-term holder if selling today (including here). Having seen value in the asset, the proposed delisting and cash offer is a disgrace to a decent asset. Unfortunately is what the market is as the market allegedly struggles to find financing. Booking a loss on BAO today is not with disappointment but more a caveat towards the directors (whom will for decent investors become uninvestable). 

BAO's Directors for some reason have an agenda to delist, if both proposals fail *(unlikely) it’s worth kicking the directors into touch. It’s asserted $12M will be difficult to raise within the current market, which rather sums up the capabilities of the management. If you see such parties on the header of anything trade-able, add a risk caveat. One can but hope for another bid? But don't hold out much hope...

More later, but for those following my SIPP dullness, Blue Solar Income Fund release their unaudited Condensed Consolidated Interim Financial Statements for the Six Months Ended 31 December 2014, bang on the money...

No time for WLFE, GLEN, RIO or Vale, but later?!?!

Atb Fraser