Morning Mumble: Afren (AFR), Gulf Keystone (GKP) and...Wolf Minerals.

Good Morning,

A number of rumours (with BS Caveat) circulating, only as a result of the rebound in oil, the main one being that Afren has found a buyer. Having been a supporter of Afren pre-debacle and even post to a degree, it's quite simply beyond the realms of any possibility that someone would be interested in the company, save for a deal with bondholders. 

Its alleged Gulf Keystone has a very interested interesting party on a joint venture. With limited information its been suggested that they party wants a 50% interest in the Sheikh Adi block, with an element of cash + carry. GKP are far from out of the woods, but all the same, their placing had significant interest and contrary to certain parties, still has interest. 

Wolf Minerals (WLFE) really need to get some decent IR (Investor Relations) in. They stand to be punished for tardiness with slow and absent information. Today, as if by magic after the EMC commented on (EMC WLFE 24 April 2015) the outdated guidance, there is an updated presentation. 

If certain Wolf Minerals employees are a reader, I'm free Tuesday's 9-12 if they need a complete overhaul of their IR, whereby information is timely and specific to the events in the market. In essence, keeping the market informed efficiently, rather than reactively! WLFE is a prime example of where the asset and management are good, the IR is ermm...limited and reactive. 

Next (NXT) came out to with a trading statement that was in-line with guidance, and a significant amount of revisions by analysts in the sector upping their price expectations, circa 7700, the Next LO contingent can feel pleased! 

Goldman Sachs really need to get with the programme, as their analysis really relies on where the price is, rather than where it will be. Quite how much of the growth in Next Directory is via the "new" Label concept. Remembering that the Label is for sale of third party branded products at lower margins.

Next will be thankful of the warmer weather and launch of their 'New-In' Brochure for the summer season, whether this continues is another matter. Perhaps, like most retail, save for "shoe companies", they had an added benefit of an early summer feel. One hopes that the UK summer has not just left us! 

NXT have given the green light on anther special dividend due of 60 pence on 3 August 2015( if registered before close of business on 10 July). Shares will trade ex-dividend from 9 July, and with the benefit of a floor at 6827 (current buyback limit and no doubt under review), Next are likely to be range bound, 7880 - 7100 bottom. 

Atb Fraser.

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: NXT, Cautiously trading & the outlook.

Good Morning, 

Well those without a rocket science degree were proven right about Next (NXT) numbers (albeit revised). The wisdom of de-risking into the news proving worthwhile for most of the traders right up to the bell yesterday, with the bi-polar shorts jumping on the bang wagon upon weakness today. 

The re-occurring theme *(yet again) at NEXT of the margin pressures and the retails sales growth as cautioned by management. Sales Growth up circa 4.8% on last year but implying saturation or limited growth, with new stores contributing the most to growth with 3.4%.

Next have almost made an outright admission that their own brand is under pressure from other [third-party brands] labels. Perversely Next see a benefit in calling another offering provided by them "Label." The only benefit being the service offering including the delivery (Next Day). Margins in the third party branded business are near 14%, from 19% in 2014, and 11% in 2013, lower than own-brand and more importantly expected to grow at circa 50% per annum. 

NXT credit account customers have declined a further 2.4% (74K) with cash on the increase, implying there is a loss of loyalty (remember that). Next, without a doubt have delivered, admittedly with revised margins, but one cannot find many reasons to hold long from now. Management leaving, margins under pressure and an implied stagnation with some "collections not as strong as last year.

Next's Sales Outlook, although the consumer economy looks benign, we remain very cautious in our sales budgets. Whilst we are happy with most of our current product ranges, we recognise that some collections are not as strong as they were at this point last year. In addition, during the Spring and Summer seasons, we face very tough comparative numbers from last year, when sales were assisted by unusually warm weather. There is a potential upside in the second half as the comparative performance last year weakens, particularly in the third quarter.

Christos Angelides (left 6 months ago and announced here) after 28 years and only a week ago David Keens (Finance Director) departs after an almost impossible 28 years departs in April (as announced here.). A cursory reminder just six months after Christos's departure, “some collections are not as strong as last year."

Christos has moved on to Abercrombie & Fitch whom are looking for increased exposure in Europe and an improvement in brand perception and performance. A timely exit by both goliaths? The long-standing stable with matched performance rewarding those for shareholders over the period rewarded with their patience is just about to come under pressure. 

With the market, including EMC expecting so much more from NEXT the realities are certainly coming to bear. 

Many thanks to those knee-jerk traders! More later...

Atb Fraser

Morning Mumble: If Boohoo (BOO) and ASOS (ASC) can do it...B(H)S and oil+shipping (as promised).

Good Morning, 

It wasn't so long ago in a meeting about 'where to invest' in a low oil price environment, I found myself recommending short oil/associated products including washing powders and the like, whilst longing holiday companies and retail leisure.

Next's validation will come shortly on Thursday (Preliminary full year results) with the "beat" being reported as a head of consensus. Perhaps not all blue sky as the market is becoming more active, expect margins after this quarter to go under-pressure again. Simply put, if BOO and ASC can do it, then NEXT should be staggering. 

The debacle of BHS, has no doubt been amusing for the sector pundits, but if the journo's don't have a clue, then we hope those fronting the company do. So whilst at the races, there was speculation from those in the industry that BHS has been acquired by a subsidiary of Iconix China Group and the daughter of Silas Chou, Veronica.

Whether Iconix or the Chou's are the reality behind BHS or not, its speculation based on Silas Chou/Veronica Chou alleged desire for a UK acquisition. For myself, if they're behind big brands, why own department stores? Those of you like I thinking,...who, what, where is Silas Chou, being swiftly told off on Friday, apparently they’re behind the IPO (2011) of Michael Kors and the purchase of Tommy Hilfiger in the late 80's, Karl Lagerfeld and Pepe Jeans. Clear as mud to I, but if I'm honest, not something I will be keeping an eye out for. 

Staying in retail, it looks like Richard Chase is exuding confidence in AO World (AO) stock slotting 5,583,475 shares  at £1.80.  John Roberts (Chief Executive Officer) assures the market John Roberts, Chief Executive Officer, said: "The share sale by Richard Rose follows the expiry of the post-IPO lock-up and will help to further increase liquidity and the number of shares in public hands. Richard remains committed to the Company, both as a shareholder and as its Chairman." 

If one thinks selling 85% (circa) of your stock (a sizeable holding) is commitment and confidence, then this week I shall spend a few hours applying for Chairman type positions of stocks that are stonking shorts. Richard Chase has unknowingly made the Christmas card list of every shorter in AO. 

Kefi, the amazing performing Gold stock, you'll note the sarcasm, gives an update on Tulu Kapi. KEFI are apparently only having to find $20m to obtain $100M in debt financing. They have a number of possible sources currently being assembled, including financing from contractors and equity at the project or parent company level. Over to the International Finance Corporation (IFC) to stump up sum (poor!)! if the equity is at the parent company level, one hopes the current shareholders (including yours truly) do not need a snorkel for the impending dilution! 

Ian was discussing his long in HOC (Hochschild Mining) over the weekend. Having spent so much time away from technology, its apparent he's incapable of differentiating between a long and a short. Today, with silver finding significant support its wise to close any shorts on HOC, not for fear of a change in trend but to lock in significant profits since the Christmas Silver bounce. They're also announcing their annual results on the Wednesday, and they might not be as bad as the market expects. One hopes there all in sustaining costs of circa $17/oz. is much better! The common-sense coverage of HOC via EMC from November 2014.

It would be rude not to consider oil and shipping rates, WTI at $44.26/bbl, and Brent at $54.20/bbl. these prices are likely to impact on shipping rates as speculators exit their floating storage rates. These rates have continued under pressure with Suezmax Tanker Spot Rates into Q1 2015, dropping near 20% from the start of the quarter having peaked at $80K+/day down to $47K/day, Aframax Tanker rates fairing much better at circa $38K/day. LR2 Tankers rates at $26k/day. All classes all (excluding Suezmax) are near 50% above the rates of 2013/2014 and Suezmax up near 100% on 2013/14). 

The industry men describe the current rates as very strong. Based on the oil price being low, with continued strong demand (Asia from Arabia) and stockpiling (surely there can't be much more), and the rates benefiting from the storage speculation (albeit reducing). The market has missed the reduction in Russian export duties (circa 40% lower), where oil producers/exporters delayed shipments to save a few $$. So more oil out of the Black Sea, Mediterranean and Baltic! The weather is impacting on the Turkish straits, delays near 6-8 days. 

With the maintenance schedules coming up at refineries around the globe, this will push higher inventories and impact further on the prices. Will the trend in rates encourage speculation in fleet growth depressing the industry? Oh yes, tanker/shipping rates are likely to come under significant pressure end 2016 into 2017. 

There's been contracts placed on around 49 long-term Very Large Crude Carrier (VLCC) and Ultra Large Crude Carrier (ULCC) in the past two weeks, giving a floor to the rates and removing excess capacity from the market. All boding well for the tanker market rates but limiting the spot market delivery capabilities. 

Afren (AFR) down another 20% today, perhaps holders have smelt the roses? Don't be silly...over to GKP! 

Atb Fraser