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