Morning Mumble: ASOS - with market muppetry - Genel (GENL) its looking like a turn around but two swallows don't make a summer & VW - the realities + putting Presidential hopefuls media campaigns to shame.

Good Morning, in the morning as well!

Very brief so kept it to bullets...hopefully. 

• ASOS - (ASC) Final Results were out today and they were ahead of EMC expectations - bought into the sell-off. Consideration is, that although they don't justify PE's of a stellar proportions, its common-sense to consider the positives. 

• ASC have finally realised the need for brand loyalty in the online market space with their roll out of ASOS Rewards loyalty scheme. Its negative on margins (50 bps) but does encourage repeat business. With sales likely to be around 17-20% ahead for the year. Over to ASOS:

Following a successful trial, we will launch our new ASOS Rewards loyalty scheme during the next six months, initially for our UK customers. This rewards programme allows customers to build up points on purchases, which become convertible into vouchers for use on our platforms. In addition to this, customers will unlock a wide variety of other rewards such as birthday discounts, free next day deliveries and exclusive content.  

• Genel Energy - (GENL) gave a trading & operational update that was about the market. Swiftly followed by the Receipt of payment for KRI oil exports from Taq Taq field from the Kurdistan Regional Government (KRG). The "if" factor is the need for regular payments to be maintained and the market has had many a false dawn. The costs are being managed and with the current level of KRG payments at least interest payments and debt service is more than likely. 

• GENL - Consideration should be given to the guidance that is implying that supply was shut in until such time as the KRG put up. Time will tell on the latter, but certainly more positive than at the half yearly. 

• Volkswagen AG (ETR: VOW) recent share price support will be tested as news becomes apparent. Reuters - Edmunds.com and associated piece is telling, now consider the implications of the downside in Europe and potential further pressure in China. 

• VW have been very clever in the main - dealing with the crisis in text book crisis management. Credit where credit is due, they've kept the media and associated press articles focused on the marque VW, without the domino effect crashing through Audi, Seat and Skoda. Although, there may be some perception/overlap it will be limited. 

• Research (EMC's - we fund our own so reference it) - The opportunity based research on peoples’ perceptions of car manufacturers suggests that there is a devaluation in the VW marque - Passat/Jetta/Not Polo/Golf and Gold Estate and Sharan with a lesser degree to the Beetle. The irony being the Touareg, where owners 'didn't tend to worry' (we've avoided using the words, do not care).

• The impact and terminology used was more positive on the 3 other marques in the VW stable namely Audi, Seat and Skoda. Although this may change as lawyers grasp the media to force a settlement rather than have a showdown in the court room. This is a significant event risk/crisis management for VW. 

• For those that know a Bentley owner, whom we shall call Indiana. When asked about his perception of emissions on cars. Don't expect many donations to Save the Planet or Greenpeace in his name over the next few years! With a suggestion that he never gets to drive his car! As if!!

• Costs regarding the ‘fix’ for the VW Emissions fixing/rigging are likely to be higher than the initial consensus - Triple Pundit runs with - As Recalls of Volkswagen Cars Begin, Costs Could Climb to $40B. Those early share price targets of buy sub €130 will no doubt be under review. We maintain our target for VW - €87.63 (Euros) a share. The damage is yet to be done to perception. Over to VW's media campaign that will no doubt put some presidential hopefuls’ budgets to shame! 

• Rurelec – (RUR) The amount of communications regarding Sterling Trust today is truly staggering. We've had the company down as a jam tomorrow stock since the handling of the International Arbitration and then the spin-out of Independent Power Corporation from Rurelec. 

• Sadly for Sterling Trust lessons of diversification are a little too late. The spin-out/off of IPC contradicted the transaction in the first place. In the absence of further developments that may return a little to shareholders, don't hold out much hope. RUR has been a sell since the international arbitration and does not warrant much other rating bar avoid/high risk punts only. Have IPSA announced similar – one simply cannot be bothered to check.  

• Hochschild - (HOC) new shares hit the market today. With so much leverage, why they only raised the limited amount and didn't elect to shore up the balance sheet is anyone's guess. Perhaps there simply wasn't the appetite for a large fundraiser in the silver space currently?

• Some half decent results for gold miners today, more later once we've found a few additional toes to aide things. Petropavlovsk Plc (POG)’s interim management statement and Polymetal International (POLY)’s Q3 results.

• We’re hearing various bits of gossip regarding Glencore’s Zambia mines - namely Mopani – are GLEN conducting a deal to finance the expansion whilst maintain operations? One suspects not, but any rumours to assist their price won't go unappreciated by the IR department! Perhaps one for the broad-sheets? Anyone up for some Mopani?

• Vale SA – (NYSE: VALE) production report – were described as strong. With records being set in production it’s not good news for the FE (Iron Ore) price. More time needed there.

• Glencore - (GLEN) will be pleased that they "sold" their the Falcondo nickel operations and the Sipilou nickel projects. What with Vale’s nickel production up, Vedanta’s Hindustan Zinc Q2 production announcement hasn't assisted Glencore one bit! What’s the read across to Glencore’s affirmative action? VED need a stronger headwind than just Zinc

• Vale’s Q3 - results here.

Atb Fraser

Morning Mumble: China's rebalancing, ISAT, VED, Lex bemusement, SXX, GENL and SNCL read across to KGF? + BofE

Good Morning,

For some reason or other certain entities prefer to call EMC commentary as negative rather than realistic on Chinese growth. We'll ignore how numbers are reported and 'massaged' within the Chinese GDP focal-points. China's premier Li Keqiang (FT) has reiterated a more relaxed approach to growth with the terminology of 'around 7%.' 

China and those better versed in the politics and industry know full well there's significant wastage, which is symbolically represented by the housing slump in China. With industries reliant on stimulus for growth, when in reality, after such a sustained period of growth consolidation would be wiser. 

The emphasis is on the 'around' terminology. China are logically accepting a slowdown/cooling in specific sectors and resetting expectations. Investors would be wise to consider this a cautionary note of things to come. The contradictions are already there, with such measures as increasing financial liquidity of mortgages but cunningly increasing the down-payment requirements for home purchases. 

Li (EMC not the direct line to the premier) has concerns for how resilient Shanghai and Beijing house prices and rental yields are, as they are already showing a larger housing price decline than expected. This is solely in part due to the exponential demands on house price to wage ratios, the latter being 50% above any other city in China, at circa 15 and 22% respectively. Raising questions about growth in the cities when balanced against affordability and wages which are slowing. China has surpassed western economies with an emphasis on home-ownership, with the lovely term fangnu meaning 'house slave'. In essence working just to keep the house.

With oil in decline, and commodities significantly lower, China will feel the benefits in the short-term, but deflation is a significant risk in China. Along with excess capacity, wage-stagnation and limited FDI. It's wise to ignore the recent jump in China inflows of FDI, on the basis of the lunar cycle being near one month earlier for the Chinese New Year. With China very much in the throes of Japan's 1980's models. Its becoming more evident that China are wary of excessive stimulation save for a populous of discontent that may force the Government to 'keep their comrades happy.' Those Chinese mega-bulls might be wise to revisit their expectations. 

Inmarsat plc (ISAT) updating the market that they're out of fashion with Government spending, down a whopping 20+%. ISAT will benefit from a trend in flight tracking and the Global Xpress system (specifically from London.) With a fairly decent run since October it would be sensible to take profits. Results likely to suggest a few downgrades to circa 850 pence. 

Vedanta have given some Cairn India guidance. We will save the debate on what proactive means, as Cairn recently updated us with Q3FY15 and "in light of the current oil price environment, Cairn is taking a proactive approach to capital allocation and shareholder returns." With an element of sarcasm, its positive that VED acknowledge they have "a" shareholder. I'm sure Anil Agarwal knows there's a few others on the register. 

Its with bemusement that the LEX column couldn't have been further off the market with their coverage of Glencore. One is resisting the urge to educate them some more, as Roger Bade rightly points out, "net income before extraordinary items might have fallen only 7% to US$4.3bn last year, but net income was only $2.44bn, after the significant items." LEX need educating about bottom and top line (Glencore: Trading Place) and what to allow for in deductions. It’s easy to spot crap, GLEN's results were crap and with some hope of a recovery in oil trading, GLEN might get some respite. 

Sirius Minerals (SXX) holders need to learn to avoid becoming the eternal short on their own stock. Holders simply won't learn nor will the management if they continue to utilise this type of funding in future. Near 40% of the fall (aided by impatience and an idiotic understanding of the planning process) is as a result of warrants and the flipping of said stock. 

Genel (GENL) full year results, suffice to say GENL expect significant growth in the future. Perhaps aided with an all share purchase? Despite exploration costs being just shy of $500M, depreciation being $141M, GENL remain bullish for the future with revenues even at $50/bbl being positive for the bottom line. As such, GENL can potential leverage or alternatively, take on leveraged assets. Is it enough to stop the rot in the SP? In the short-term yes.

Sinclair Williams (SNCL) continue their historic trend of disappointment with the CEO falling on his sword today. As asked last year about SNCL, my flippant comment that I hope you aren't composting your share certs created upset. Perhaps now they'll have a group hug! Over to SNCL to sum up trading above their "poor start to the season." 

William Sinclair has had a difficult season so far. While some progress has been made in the ramp up of production, we are not as well developed as we had expected to be at this stage. We have also seen a slow start to the season with sales to retail and professional customers below last year. There has been margin pressure in both professional and retail sectors. Consequently the Board expects that the result for the year on an underlying basis will be materially worse than last year.

Allowing for debt, SNCL will have to pass the cap around soon, the read across to B&Q (Kingfisher/KGF) might not be as favourable if one measures compost against KGF sales. It would be very unwise to bet against KGF with the current buyback in progress. With a few savvy investors spotting the money for old rope long. SNCL benefited with the hope value in the recessionary grow your own that failed to materialise. With the younger generations avoiding any form of home horticulture and DIY, the future isn't so rosy, quite how they’ll turn around this business remains to be seen. Price perception of compost and gardening materialise is amazingly difficult with older generations being the driver rather than the youth of today. 

Daily Mail + Cyprus Mortgages. Talk about reactive reporting, wasn't yours truly reporting on this in FTML a few months ago pre-CHF debacle? What the article does not say is the lengths the Cypriot banks will go to seek recovery of their money. With UK holders with property in the UK potential having to sell / lose their homes to repay their potential obligations. For those with potential obligations over there, they'd be wise to contact Christofi Law, who are conducting a class action.

We have the excitement of the Bank of England rate decision today, which I'm sure will thrill people with no change!

Atb Fraser

N.B Avoiding Oxus commentary at the moment on the basis a) trading, b) potential misinformation is in the public domain about the size of any award and c) holders should have made considerable monies already. 

Morning Mumble: E-Sports Events &...Chinese Rate Cut (The 1st Part of New Stimuli) & CFU (GoodBye)

Original published draft version (content or context has not changed!) It appears I had two pages open and published the wrong one. Edited version below, mere typos etc...

Good Morning,

It was only in a call the other day I was asked about Gfinity Plc (appointed a Creative Director) and GAME Digital get in on the act with the acquisition of Multiplay (UK) Limited. A very brief comparison suggests Gfinity is over-the-price. There is likely to be only one winner in this space, but...GFIN and GMD might be in for some tough competition, with rumours about two Television Broadcasters considering a similar model to Robot Wars for gamers. The question is, will it draw the viewers?  

Staying with rumours as the weekend allows for such things, normally after a substantial share price movement on a Friday, perhaps the board of Gulf Keystone would like to update the market on the offer received? If the gossip is true, Gulf Keystone have already got an indicative bid subject to a CPR and a few other pieces of due diligence, namely production. 

Over the weekend China showed its cards in just how aggressive it is prepared to go to maintain growth above the 7% level. The contradiction is the Chinese government are now conditioning the market to 'easing.' The comrades are not prepared to let growth drop without a good fight. It’s not often the WSJ gets the tune of China on the money, China’s Rate Cut Renews Economic Concerns Beijing is relying on increasingly aggressive measures to rev up economic activity.

The Chinese are concerned, not only about the growth, but their "B&B of exports", which are in decline. China's growth may just be impacting on its competitiveness. PMI Data (Reuters), confirming all the logically economic issues in China.

Ceramic Fuel (CFU), time to turn the lights out, this stock has performed EXACTLY how it should have in light of performance. If you bought in, perhaps you sould be asking yourself why/what/where...these mistakes are often more valuable than one realises.

Due to other commitments, a short-one! Save for Allied Mines...(ALM). Staggering!

Atb Fraser

Chinese afterthoughts & GKP (The pundits favourite)

The reliance on state bail outs is coming to an end in China. The excuses are many fold from "utilising this time to improve quality, lower pollution, improve economics." It’s our view China has to stop investing such a large percentage of GDP into capital investments; whether that be roads, railways or redeveloping towns.

The weighting of lenders towards specific sectors is not the only issue specifically where there has been the most defaults: Solar, Coal, Real Estate and potentially Steel Mills (two are rumoured to be looking for aid). There are number of bonds due this year in China, with the market exceeding the official figures.

The Chinese bond market should be a likened to the larger platinum producers raising capital for expansion, but unsurprisingly this has to be transferred to OPEX - a prime example being Aquarius Platinum and Lonmin. What parties should be concerned with is the "amount of cash raised compared to what is available to pay these coupons." In such a short-period of time the cash has all but disappeared. 

The most recent Baoding Tianwei Electric default is a prime example. With $328 million raised 2-3 ish years ago and it barely has enough cash to make a $500K part payment that was due on the 7th March 2014.

Chinese Bonds replaced the Development Grants that the Chinese awarded to the likes of the Solar, Coal and Steel Mills for stimulus. The investors mistook these grants for a bottom line operational profit, but someone forgot to ask how much development grant has the company had and how much less will it be receiving.

If major companies are defaulting on repayments within 2 to 3 years of the issue of Bonds, it raises a significant question about how bad the balance in the economy is or is not. The latter has caused the deleveraging of positions in the Copper and Iron Ore, with consequences being felt in the product pricing such as steel with oversupply as an additional problem. 

Ironically, if one is to look at the Rusal IPO and listing in Hong Kong, the figures rather glaringly stated what was going on not only in China but Russia. The Russian state bank is alleged to be looking at bailing Rusal out. From one perspective, bailing out international lenders at this time with the Crimean issues is very unlikely. "Lenders" are likely to compromise on a deals albeit at the last minute.

The property bonds, are not only pricing risk in on Copper, but also on the entire over-cooked/leveraged sector. With Zhejiang Xingrun Properties clearly unable to pay its $500+M bond's what next?

Well my view is simple, in order to meet growth targets etc...China ironically has to let these defaults occur to avoid further over-cooking in other sectors. 

First China had Coal Defaults (albeit bailed out), then Solar defaults, then Buildings and/or Real Estate. Its only time before these positions unwind so must the leverage in Copper, Steel (the most heavily leveraged one way steam locomotive that's running out of track!), Iron ore, and Oil. This will be a short-term correction but more pronounced.

With Iron ore likely to be 61-65 a tonne 12-18 month average and that is slightly higher than our revised consensus of 55-57$. I acknowledge it’s bounced a little, but I put that down to speculators doing the same as I and buying back their short positions.

The knock on is that aim market will suffer with economies of scale not being to a magnitude to become more efficient. The prime example being the Gulf Keystone, which was it really a surprise?

Some idiots, had a belief that two Chinese chaps in the Gallery at the trial meant a buyout. Correct me if I am wrong but the best time to sell Gulf keystone was when they raised the bonds Pricingof Convertible Bonds but more importantly when one of the head honchos sold ten million. 

Its acknowledged that it was a transfer under a financing agreement but let’s face it, it’s still a corporate activity between two parties (aka a sell). Namely, that corporate activity involved a person whom was meant to be enhancing shareholder value but strangely was not maintaining any exposure. 

As a thought, with the Bonds under significant stress, higher cash burn, and limited production, what's the odds of it going forward? But strangely, why has the market been so slow to react and will GKP be able to raise monies at a level that is affordable for the development. It’s looking more likely that a stressed farm in deal or massively discounted Rights Issue will occur perhaps a SEDA just to cheer the holders up some more.

Genel are funded, have cash and are certainly a cheaper option in terms of director salaries than say, GKP. However, any deal would have been done long ago, and with the risks GKP have, any suitor would surely be wise to wait to see how poorly the company is before approaching.

Interesting times, but its worth consideration with a spat of corporate bonds being inked over recent months, will there be defaults? Hmmm, these 5-6% high returns in a bond are not really worth the risks of companies whom have not got the prowess nor history to back up their assertions off repayment.

GKP have not defaulted, but it will certainly have some stress and or costs attached to make payment. I would not be surprised if equity was exchanged for the repayment at a discount to market for parties to load them off to cover their own liabilities. 

It’s nice to see blogger comments working properly, I'm aware it’s been a non-goer for some time. I can read them merely not publish most of them despite trying. Even those negative ones, extolling positives about my character and shorting actions (I think everyone knows there haven't been any of those!).

Perhaps shorters should be called realisers of true value, it sounds more acceptable. This is from someone that disagreed with the shorting principles of negative betting only 4-5 short years ago. It was a realisation that people were more likely to back a dog and hold it tighter, that I realised shorting was easier to start, realise and assess companies than longing. 

There are benefits though, trading is more exciting, and shorters have a mind-set that is ironically positive, don't moan about taking a hit, but most importantly of all have to make their own decisions.

I would go as far to say it’s addictive, what better validation than making money when the majority think the price will appreciate? The underdog of the market, the contender for the most abuse.

As a final thought for those thinking about all things trading wise, I will not be sharing my data, but what percentage of AIM companies have missed their self-reported targets? Doesn't bode well for the longs out there if there's so few companies where targets are being met. 

Just a thought...

All the best, Fraser (Sat outside in the UK in March without thermals)