Sunday, September 16, 2007

What's a Rock Worth? Lon: NRK; This Could be Awkward

Welcome to Rock & Sole Plaice, would you like extra chips with that?

From the Financial Times September 16 2007 20:31:
Northern Rock chiefs push for fresh sale
...If no buyers come forward, it seems likely Northern Rock’s business will be gradually wound down, effectively leaving it with a shrinking mortgage book as loans are repaid. Its advisers are thought to have calculated that, in this situation, it would be worth about 180p a share. On Friday they closed at 438p.

From the Telegraph 1:35am BST 16/09/2007:
Northern Rock appeals for white knight as run on bank continues
...Merrill Lynch, Northern Rock's adviser, is believed to have been locked in talks with the board on a potential break up over the weekend.

From FT Alphaville September 14th, 2007 at 8:34:
Rock slide? Not in Merrill’s view

We like a ballsy call, here on FT Alphaville, but what’s this? A “buy” note on Northern Rock, no less, from Merrill Lynch.

The stock is trading at 1.1x 2008e tangible book value for an expected RoE of 18%. Moreover, unlike US mortgage players where there remain doubts as to the book value from mark to market hits from revaluation of the sub-prime portfolios, Northern Rock is a prime lender with negligible intangible assets. If we were to consider Northern Rock as a closed book in run-off with a half-life of three years on its mortgage book/asset portfolio, this would suggest a fair present value of 872p on the stock, a 27% premium to the current share price. Our Price Objective is 913p, based on a target multiple of 9x 2008E.

The risks to our Price Objective are a more prolonged credit market closure than expected, and a macro downturn in the UK which would lead to higher provisions.

The risks to the author of this call, John-Paul Crutchley, have yet to crystallise.

As we say in America, Yikes!