Morning Mumble: Dee Effe Esse, China's Steel Mills (No news), PMO Zebedee BOING! & APR Energy (the Fluke)

Good Morning,

Following on from the EMC February comments on DFS Furniture (DFS), today we are informed (with no surprise) the management and owners of DFS are running for the door selling around 25% of the company. Advent will still hold between 50-55.9% of the company, so those realists will be wise to remember the rules of illiquid stocks at least until the stabilisation facility has been finished!

With Li Keqiang (and as such the Chinese Government) acknowledging the downward pressure on the Chinese economy intensifying. China have finally utilised the over-capacity and pollution to justify the closure of the mills. It’s positive for the Chinese as they're openly stating iron ore demand is reducing and there is currently over-capacity in steel mills even with the closures. With the extended trading hours on the DCE (Dalian Commodity Exchange), the price reacted very positively (for the shorts), dropping 3%. 

We should initiate the Atlas Iron share price watch again, with those holders knowing full well the bounce at Christmas was the time to get out! Only 10% ish off its lows, the holders can fill mailboxes with the abuse despite knowing the realities. Of course it has nothing to do with cost of production and the supplied market. We'll ignore the facts of Russia exports being enticing for India on the back of their currency debacle. As Russia languishes in a mire of contemplation and ignorance, what better time for military exercises (FT). Often children find comfort in playing with their toys after being on the naughty step....

With both WTI and Brent sat on levels of support, one assumes the bulls will return with the ECB printing presses, at least on Brent, whilst WTI focuses on shipping America to Asia to meet demand. Later today I hope to catch up with a shipping chap about the current health of rates and demand. Will update in due course, the delay surely cannot be on the basis it’s his turn to pay (not that one is counting having paid for the last 4!)

Premier Oil (PMO) are getting busy with the drill bit, so the fanfare will no doubt be out for Rockhopper (RKH) over the next few weeks. Wasn't Zebedee a child's spring type character well before my time? RKH Zebedee announcement.

APR Energy, by sheer fluke being short on technicals alone, APR Energy aided EMC et al with a market update. Time to press that button on APR, with a trading update/market update not the best timing with discussions with their banking syndicate in full flow. Its pleasing to see a number of positions utilise yesterday's spike to sell near break-even, how prudent to sell positions. 

One would be wise to consider how much cash APR banking syndicates will expect shareholders to stump up. That alleged offer late last year isn’t looking so speculative and cheeky now is it! The EMC Christmas Card list is bordering on the who do we not send them to. 

Limited time to cover GLIF’ s investment, in Open Energy Group, and the dull performance of Inspired Capital (INSC) not to be confused for those fat fingers with Inspirit Energy (INSP). Both a longer-term hold since circa 2013/2014.

Atb Fraser

No comments required on Afren (AFR) due to the obvious there. The quote of the day goes to one fund manager with, "whoops." 

MM+: Amara ++ Dan McCrum

Some good work here from Dan, Amara, BCM, and unpaid debts in Burkina Faso . Dan/FT obtained the appeal judgement in Côte d’Ivoire. Yet no update from AMA, perhaps they need to settle this debacle before it becomes overwhelming?

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. 

PM Bolt On: FTSE Re-jigs + Greggs (GRG) belatedly joining HIK in an exclusive club (for now).

Good Evening,

Kicking itself out of the FTSE 100 to the FTSE 250 is Tullow Oil (TLW) and being replaced by Hikma Pharmaceuticals (HIK). This evening saw the departure from the FTSE 250, Afren (AFR), Game Digital (GMD) and Oxford Instruments (OXIG). In goes AA Plc (AA.), Imagination Technologies Group (IMG) and Virgin Money Holdings (VM.) 

As a positive, HIK has long been established in the do not short category, near 5 years. With institutional owners reducing the stock may see some selling in the short-term. The potential of Pfizer/Hospira impacting on HIK's market is limited. With regions becoming more competitive expect HIK's margins to be under-pressure with modest growth but resilient and very competitive. 

With the Darwazah family holding at circa 30%, any offer would have to be of stellar proportions to be sufficiently enticing to gain the support of the family. With HIK's performance to date you'd be a fool to bet against the company without sufficient news to validate the position. Greggs may have just joined this rather exclusive club...

The reserves list being: 

• Berkeley Group Holdings (BKG)
• Cobham (COB)
• Inmarsat (ISAT)
• Merlin Entertainments (MERL)
• Provident Financial (PFG)
• Rexam (REX) (canned/poor I know).

EMC: Greggs (GRG) Tuesday, 13 January 2015 longs were validated after being categorically wrong. The profits up just over 40% today (Preliminary Results), benefiting from a smoother blend of coffee (instead of floor sweepings (EMC View), expanding almost Costa like into motorway service stations (even an Isle of Wright ferry) they are certainly grasping the Greggs turnaround plan. With the bakery, pies and pasties still the butt of jokes but key to the end-users perception of food on the go, namely fresh and perceived decent value. 

The risks are not to be ignored in terms of the food-on-the-go competition hotting up, with a target of circa 2K stores, Greggs still has some decent head-room and upgrades likely, with expansion paying well whilst consumer confidence is positive. One would be wise not to get complacent. With a reviewed target price of near 990 pence, patience may be needed as momentum is clearly in place for the management and a favourable outlook with lower oil prices, improved consumer mood, and employment on the up (if one ignores some elements including zero hours). A real risk to Greggs is that it has been suggested that some management may be enticed by "bigger fish." 

Atb Fraser

N.B. Abusive or ignorant commentary will never be published, don't waste your time as it just enters my spam bin.

Morning Mumble: The Rumour Mill in Afren & Gulf Keystone...positives for KEFI? surely not!

Good Morning,

Afren (AFR), appear not to have updated the market on "the likely" outcome of the bondholders with monies allegedly already being discussed. Speculators would be wise to acknowledge the risks associated with the equity going to 3 pence. 

This morning, Leggie rightly points out it's an identical play to Petropavlovsk Plc (POG), whom Deutsche Bank AG put their head above the parapet with 7%. AFR, was once upon a time a darling of EMC, including most of the supporters, logically it was wise to exit. Is there a lesson here about hedging and leverage? 

Sticking with the rumours, Gulf Keystone (GKP) allegedly have some visitors either heading to or currently on site in Kurdistan. With a Competent Persons Report (CPR) due very soon don't expect too much before this but with GKP about the money at the moment, it would perhaps be wise to watch the volumes. 

Eurocel (ECEL) are coming to the market with conditional listing today and unconditionally on Monday. The IPO with the Dutch and management cashing out circa 50% of their holding, we'll leave it to the pundits to assess the viability of the company. With a valuation of £175M gives an implied yield of 6% assuming no growth. Investors would be wise to look that all the previous year’s performance, not just 2014!

A few analysts had some comical backtracking (belatedly) on Fresnillo (FRES) today. The Financial Results for the Year Ended Dec 2014 are as expected, crap. We do not need rocket scientists to point out the obvious between 2013 and 2014 in terms of silver prices, with a 18% decline in realised prices and nearer 32% if one was to include the last 3 months with the average weight price down, towards $17/oz., at best. 

It’s worth noting, with FRES's expansion and long game, it'll give some comfort to long-only holders to top up/average down. The news is a signal for yours truly to close shorts to reappraise fully, FRES's production costs have dropped which helped to offset the grade declines but could not keep up with the price of silver tanking. With averaged prices significantly lower since the reporting period, FRES need to get a handle on costs. Although it's ironic shareholder funds performed better than GLEN, a whopping 5%. 

What are Bacanora Minerals (BCN) playing at? Holders voted with their feet today for good reason and to show their disapproval sold a minor amount to give the board a clear indication of their views. If the board do not take today's price action as an indicator of shareholder opinion, they would be wise to learn. 

BCN may go strength to strength from here is immaterial to the value the company had yesterday. There would have been no successful outcome on the EGM based on a quick poll of decent holders. Having closed spread bets the profit has been left to run in equity, with a different risk profile as a result of the appointment today. BCN can look forward to some Horse Hill type twitter updates. On a positive, with funding readily available for "key" projects and a CEO not far away from for BCN the outlook is positive for the assets only. 

It’s rare to see anything positive for the shareholders out of KEFI but today they have come out with a decent update.. With some easy finance should be available locally for Jibal Qutman, KEFI would be wise to focus some significant effort on pushing the project into production. 

The key for the stakeholders being the oxidised material where recovery rates likely to be in the 80-90 percentile. Hawiah has some appetising comments where KEFI seem to think they can “identify large base metal (copper, gold and zinc) targets at depth." Could KEFI just be turning a corner and warrant a buy? We'll await further base metal analysis. 

Limited time to cover the significant amount of oil hedging currently underway! 

Atb Fraser

Morning Mumble: REM's Desperation & Writedowns lost in the GLEN. Copper Gossip & Spain 2.0.

Good Morning, 

Markets tend to be more confident in the UK as it shrugs of its seasonal affective disorder to start the spring afresh, but not for long! It was yesterday the supreme chartists (exc. Hugo) are now calling for a FTSE 100 retrace to near 4000. To quote Hugo, as it's unusual for him to be consider the FTSE, if there was a retrace it would be circa 5100, nowhere near the 4000 being bandied around. 

REM (Rare Earth Minerals) appear desperate to get above 20% before any such EGM at Bacanora Minerals (BCN). LGO don't have the necessary cash to remove the issue of a vote for the appointment of a Director to the board. The question should be, how much cash do REM have left? No much is the answer…

Having spoken to a few savvy investors in BCN it's unlikely that David Lenigas will achieve the intentions via REM without 20%+ direct holding. All holders should be thanking REM for creating a large illiquid squeeze (do not blame shorters as they were near nil or should have been!) in the stock with the price near doubling. This does not mean they should vote REM or any associates on to the board, far from it in fact.

Glencore's (GLEN) preliminary results 2014 in EMC's view should have taken a huge hit on thermal coal.  The carrying values have warp the overall figures to give a false sense of security for an improvement in the dividend, up 9% today. Viterra saved GLEN from dismal results, debt reductions of circa $5.2b will aided those with myopia and the savings from the incorporation of crap from XTA (Xstrata) are just mystifying. Although when one unwinds the debt, it’s worth noting the sole reduction was down to Las Bambas sale. Had the 'synergies' and CAPEX reductions be substantial enough, the level of debt paid down would have been circa $6.4B and potentially nearer $7b. (Time for a picture, it's dire!) 

The preliminary snapshot sums GLEN up, but doesn't give the whole picture. The market should have been selling into these results. They are dire if you add in coal and the return on shareholder funds, laughable. Roger Bade goes with 4.2% return on shareholder funds. 

Its ironic BLT (BHP Billiton) achieved better than GLEN despite having Short32 to get people's mouths watering. Although, with GLEN's trading division and the level of capital intensity required you'd be a fool to expect the same metrics as Rio/BLT and dare I say it Vale, whom have their own issues.

Roger asks some very good questions about the reasoning or underlying issues within GLEN regarding fees, commissions and pay. Perhaps GLEN was more suited as an unlisted anomaly. Well not for the sellers! It’s very hard to justify a valuation above 265 pence for GLEN, and that's pushing it. So over to the analysts to maintain the status quo with targets of 330-360 pence, obviously not for their own money though!

Analysts are left guessing where GLEN will cut its CAPEX. We'll leave the summary to GLEN, "Responding to the volatile market backdrop, we comprehensively reviewed the appropriate level of capex for 2015. Originally guided to $7.9 billion, we now expect 2015 total industrial capex to be in the $6.5-$6.8 billion range, with reduced spend across the broad portfolio." Coal? Oil? Alternatively OPEX? Marketing? Perhaps more transparency on the marketing fees and 'associated' costs? 

Of course we should end the GLEN commentary on a high note with the largest LMI (Lonmin) short...the in-specie distribution. How has the stock performed since GLEN's in-specie announcement 11 Feb 2015? Those two analysts in RSA (Republic of South Africa) that thought it would be good for liquidity, with a TP or near 240! 

With Mugabe's 91st Celebrations being in the headlines, Mwana Africa (MWA) managed to raise $20M via a bond issue for the smelter restart from ZIM institutionals. One hopes MWA have checked the lead times for the equipment they need in for the smelter reopening in 9 months’ time. 

There's a guaranteed uncertainty coming to the politics of Zimbabwe. It would be sensible to consider this with any investment, irrespective of the benefits of the commodity (namely Nickel). ZANU PF (The Zimbabwe African National Union – Patriotic Front) are in turmoil about who takes over...Even the MDC-T (Movement for Democratic Change) are becoming soft in their old age and wanting to maintain the status quo of ZANU PF, lip-service objections?

Copper gossip via Li in China, Zambia are alleged to be reviewing the overall tax-rate for open-pit mining that has impacted copper production and sentiment on any investments there. After initial discussions with the operators, Zambia are alleged to be reviewing the 20% royalty rate to 12-14%, although ahead of the previous 6% welcomed by the miners. 

Zambia have risked their entire industry in the short-term with the revisions to the Zambian corporate tax and mining royalty regime. With First Quantum's Sentinel mine coming on stream, they have had to revert to their lenders to tweak their covenants. The 12% for Vedanta is still far from positive, and creates risks, despite a recovery in the copper price (currently 2.66/lb)

With Zambia appearing to want to play a hard line on taxation (at least at the moment) Vedanta (VED) is at real risk of being the casualty. Its capital and corporate structure drastically need simplifying/clarifying in order to survive, VED appear have got ahead of itself in the price recovery. 

A few super-yachts cancelled today?

Atb Fraser

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