Morning Mumble: AO World's warning & are their PR Tulchan Group novices? Anglo's further woes thanks to Kumba/Exxaro, IGG stab at the regulators regarding PLUS & Tim Howkins surprise departure.

Good Morning,

AO World's (AO.) there's nothing in the results to want to purchase the equity. The inference is AO. World are attempting to turnaround the pressures they've met over the last 12 months. AO. interim management statement (IMS) for the AGM suggests they knew that July was going to be good. At no point has there been a reference to July being the turnaround in sales or of strength to be noted.

Over to AO.:

As we communicated in February we expected sales growth in the first quarter of this financial year to be muted. We report revenue growth in the UK business for the 3 months ended 30 June 2015 was 6.5%, with our orders up 13.9%. AO.com experienced revenue growth of 11.2% year on year. This growth was delivered through a period of particularly intense competitive activity in the market, compounded by the uncertainty surrounding the general election.

Despite there being a general election house sales remained resilient as reported by Persimmon (PSN), Taylor Wimpy (TW.) (Pre-election update) neither did Dixons Carphone (DC.) report any woes. Further, house sales (exclude new builds) were not impacted massively either, down circa 3% in May. So have AO. merely benefited off their IPO hype, now normal market conditions apply?

AO. had some uncertainty...grasping at straws springs to mind. AO. is still over-priced compared to DC., even allowing for mobile phone sales. Expect some relief rally in the stock, the woes of going into the AGM/results with short positions in the current market. The IMS pretty much explains why the stock has been without support.

We'll ignore the restrictive practices of Tulchan Group regarding accessing the conference call. To note, AO will be holding a conference call for analysts and investors today, 21 July 2015 at 7.45am. To register and for dial-in details please contact ao@tulchangroup.com. 

Tulchan Group are so experienced with investors, instead of publishing the details they develop a restrictive practice or data / information harvesting, or is that a message to investors. The details of the dial in should have been published in the RNS or better still in the AGM Notice. Incompetence or oversight? Take note Tulchan in the event you're pitching for one specific upcoming IPO's where this will be raised. 

Kumba Iron Ore (JSE: KIO) had some relief on the back of taxation benefits. This is going to hurt Anglo American (AAL) over the longer-term as the axe has finally fallen on the dividend. Kumba have finally admitted what the market should have acknowledged, that "prices are expected to remain under pressure as Australian and Brazilian producers increase supply, and demand growth from China slows." Please note the later...

Kumba believe they get can their cash costs down to $45/t from near $65/t average for 2014. So like the majority of mining companies in South Africa, they're cutting jobs and reducing costs, trimming the fat on capital expenditure near $200M, in addition to reducing/removing support-services (watch the lost-time injury frequency rates). They hope to "reconfiguring mine plans," although this may be trickier than just typing it.

As a positive, the higher cost Thabazimbi mine is closing. From reading my Grandfather's diaries during WW2 I think this was one of the strategic assets. Has Kumba's spat with ArcelorMittal over the 20+% Sishen been resolved yet (See: Criminal)? The saga has been going on 2+ years. With the reduction and unemployment rates increasing in South Africa, when does this impact on the political stability? A good proportion (1/3rd) of earnings being a tax rebate, the outlook isn't looking great. 

The read across with the postponement (cancellation) of the interim dividend is negative for Exxaro Resources (JSE: EXX). JSE: EXX makes Kumba Iron Ore BEE (Black Ethnic Empowerment) compliant at Sishen Mine level. Anglo as 10% holders in EXX via a the web of South African ownership entities means with the assistance of Eyesizwe Mining, its more than likely they'll have to provide guarantees or funds to support JSE: EXX. 

From JSE: EXX's own Finance Director’s 1H2015 pre-close update:

3.4. Sishen Iron Ore Company (SIOC) The significant decline in the iron ore price during this reporting period is expected to translate into significantly lower equity-accounted income and dividends from SIOC. This has a direct impact on our cash flows, our ability to comply with financing covenants, as well as to continue to pay dividends. 

With a weaker rand against the U$D, any recapitalisation/rights issue/debt restructuring will at least be a little less sour. 

IG Group (IGG) came out with a little better than expected results. With the roll out of ETF's they're certainly covering the needs of investors. Although perhaps not the first port of call for some, their revenues are looking sustainable. 

CEO Retirement of Tim Howkins spooked the market, the preliminary results weren't bad when considering the CHF issues over circa £27M. The cursory statement to the regulator is important; At IG we take very seriously our regulatory and consumer responsibilities on appropriateness tests for prospective clients. This incident underlines the need for regulators to ensure that regulatory standards are applied robustly and consistently across the industry. 

Loads more but so little time! 

Atb Fraser

Morning Mumble: Naibu (NBU), Iron Ore & Anglo Pacific & JKX + Pawnstars

Naibu (NBU) NED's request the suspension of trading in the company's shares. If this is what I think it is, it comes as no surprise. For those more versed in such matters the rocket science of Li Ning's struggles represent the issues. China's Li Ning warns of third straight yearly loss, outlook upbeat. Having closed my shorts out the other day, was I premature. I suspect so...but it would be rude if I started complaining. CamKids isn't suspended is it?

It was hoped today there would be time to share some Housing issues that are coming in the UK. Persimmon based on values and the glut First Time Buyers really needing a review based on a number of factors including First Time Buyers, however it'll have to wait as most are now in action.

Anglo Pacific Group (APF) PLC Trading Update is with no surprise, the lack of enticing assets and the returns that are dire. With jam being implied the dividend may provide some support when DRIP (Dividend Re-Investment Plan) or SCRIP is applied. Unless something materially changes in the asset base or an acquisition of a decent size is made the dividend will start to look expensive in terms of risk. Kestrel appears to be the only saviour here....and that's "anticipated" and far from in the bag. 

APF with the usual excuses about the commodities market, if one had superior assets even in dire markets the returns are assured. The inferred big deal appears to now be never coming, with limited funds, and a question over whom in this market would support the financing for a larger deal, its not for widows or orphans. Expect APF to give up some of it's more recent gains.

Iron Ore is being bounced around in my inbox with most whom disagreed with common-sense however long ago now surprisingly having a sniff of reality. This morning I was sent this through (Cheers AV) CHARTS: Iron ore price won't withstand 2015 supply flood. With their views only 10% lower than mine (currently), albeit disagree with their views on Copper and so would the market with a near 7% drop in the last month. 

With the Chinese returning to speculation (one assumes  this time with Chinese finance instead of STAN's / Citi's :-)) Copper could have some support...but for how long with  Kaisa's missing a payment . Anyone for a Government initiative for social housing? Anyone for a high risk punt on discounted property bonds? The smaller companies appear to be impacted more so...gaining short exposure is difficult though. With little takers for iron ore futures further out, prices are likely to come under further pressure. 

JKX (JKX) Oil & Gas PLC announce Elizavetovskoye Production Update which I suspect will be on deaf ears. The Ukraine has not been forgotten not the limited upside until the issues in the region are resolved. One suspects Putin's weather doll for a severe cold snap to improve his position has taken a vacation. 

H&T Group PLC (HAT) Trading Statement is a positive, with some jitters in the market it should be seen as a positively for the Pawnbroker. With Albemarle & Bond (ABM), being the short and the competition across the sector being seen as a positive, HAT are in a position to acquire and grow from strength to strength. Net Debt down, an acknowledgement of need for a retail focus has started to reward them. There's a number of ways HAT could improve their margins, however that's for them to work out. It's a long not without risks, especially with welfare reform, something to consider for all higher cost lenders, albeit HAT do have the pledge. The downside is, with limited upside on the current SP save for a buyout (or extraordinary event) its not that appealing.

Some shipping watch showing the dire state of the industry for dry goods. Around $70m is at stake for Jinhui Shipping following protracted commercial disputes with Grand China Logistics (GCL) and Parakou Shipping. With losses racking up for Jinhui...

Atb Fraser

Morning Mumble (late): Housing & Coal

It has already been a few days of speaking with conveyancers and meetings for a house and flat sales/purchases. What is often interesting when dealing with companies is gaining a wider helicopter view understanding of the market.

The auctions have been tailing off from the summer (not uncommon) with a few (Inc. myself) being out bid on most properties from March to September. The achieved price is now significantly lower (near 11% lower than the summer), and the number of interested parties appears to be well down. Seasonally it’s not uncommon, but one factor cited is the affordability elements of the mortgage applications even for clients porting their mortgages to a new property. Positively it is limiting the competition so for the buyers out there are some decent purchases to be had.

Examples being, there is a reduction in borrowing capabilities of home owners or the more common situation occurring being limitations of additional funds to up size. Yes, this is positive in cooling the property market and reducing the risks of a boom albeit contradictory when considering the Help to Buy (H2B) that is meant to assist people on to the market. Historically, I'm from an era of 3.5 times main income plus 1 of the income.

The lawyer's example of the couple had an income for Mr & Mrs A of £45K & £11K, borrowing potential of £166K in the olden days. It would appear the Government Bank differ on this and have approved them for a paltry £104K of borrowings. Perhaps an extreme example of miscalculations/assessment with no other liabilities (no loans nor student loans etc.) one assumes they'd have been lent upwards of £130K. 

The firms I'm dealing with at the moment are finding most of their work is around £105-£250K (North) and £285-£445K south with a large reduction in properties over £500k. Implying the peek has come, with demand tailing off and supply stagnating. This is with no surprise when you consider the recent London developers announcements about cooling off and normalisation of sales.

It has however got me thinking that the housing market is likely to have some form of coming. Whilst speaking with solicitors they note that a lot of sales are being repriced lower (reductions on the offer) even for current home-owners when the affordability terms applied, This is happening even for those porting mortgages from one property to another. It could be construed as the "housing cap" rather than blowing the bubble.

Its uncanny that today's interim management statement by Persimmon Homes (PSN) with PSN stating, "As expected we have experienced a return to a more traditional seasonal pattern to customer activity this year with reservation rates picking up with the onset of the autumn season after the slower summer weeks."

One does have to acknowledge that PSN has good forward visibility on their reservation interest circa £696 million of forward sales reserved beyond 2014, an increase of 12% on the same point last year (2013: £622 million). Perhaps one would be wise to call that the steam.

Its wise to keep my opinions to myself about timber framing after seeing a property being totally rebuilt (bricks only) recently as a result of being incorrectly tied in, could this be a problem for the future. PSN's Space4 timber frame had an analogy recently by a brickie to..."Space4 another home in a few years." One would be wise to consider the significant of "a more traditional" seasonal pattern in conjunction with affordability rules.

Glencore's Interim Management Statement for the 3rd Quarter  was positive in terms of underpinning copper (own source) up 8%, Ferrochrome up 5% and own sourced coal up 7mt to 111.4Mt (7% gain). GLEN's Zinc was just ahead of my expectations with the ramp up in the Australian ops (McArthur River and Mount Isa) and Perkoa avoid some of the consequences of closing the Perseverance and Brunswick mines.

Quite how GLEN will performing with the market outlook for coal for the next 12-18 months is riskier for the long only fraternity. Expect some small acquisitions to consolidate the super-cycle, watch out quality AIM companies. (Easy to identify). As such, with the outlook for coal and the risks to copper due to the control by certain parties, GLEN's a good intra-day trade on the news. With Japan going in the opposite direction to the US, the markets will go following the good news.

Limited time for AB Foods  (but they do miss the managements own LFL sales improvements by 0.5%) and the drinks announcements yesterday, post a telecon I may return to them. Surely I do not need to comment on the sugar outlook we all know too well...just in purchasing it.

Could LGEN's Q3 IMS  bode well for the listed annuity providers with LGEN breaking the trend? Some really good news for HomeServe in the member agreement with AARP. One certainly to watch...

Atb Fraser