Posts Tagged ‘Abbey’
This is a bit of a hotchpotch of what has been catching my eye over the past few days.
To kick off with construction, Abbey announced the results of the mandatory offer from Gallagher Holdings. The latter has raised its stake in the housebuilder by 10.7ppt to 72.6%. This is not enough to force a compulsory acquisition of the balance of the shares, so the stock will retain its listing. In the run up to the deadline, I had struggled about what decision to take about my own holding in the company. While the bid from Gallagher represented a nice exit price on a stock I purchased for only €4.60 a share, it was pitched at a disappointingly wide discount to NAV. In the end, I elected to take the cash, on the grounds that I didn’t want to stick around in a stock that has now arguably moved from ‘quite illiquid’ to ‘extremely illiquid’ (!), which makes it unappealing to many institutional investors. However, I may well re-enter the sector in the not too distant future given that the long-term drivers of growth are very much intact (a very old housing stock, net inward migration, severe pressure on housing in the South-East of England).
In the food sector, Investec argues that Premier Foods faces ‘death or glory’ by 2014. Elsewhere, NCB issued very different (in tone) reports on Aryzta and its majority-owned associate, Origin Enterprises. On Origin, NCB argues that weather and FX should provide a tailwind to earnings, while on Aryzta, NCB makes a persuasive argument that it may not hit its 400 cent earnings target for 2013.
(Disclaimer: I am a shareholder in Harvey Nash plc) In the recruitment space, SThree released an interim management statement that revealed slowing growth. On an annual basis its gross profits rose 6% in Q3 2012 (in constant currency terms) of its financial year (i.e. to end-August), down from +15% in Q1 and +9% in Q2. Drilling down into the numbers we see it has experienced weakness in both the UK & Ireland and ICT, with other areas performing more resiliently. The slowdown in the headline growth rate was, unsurprisingly, explained by “the difficult macro economic backdrop”, but SThree’s resilient overall performance highlights once more the importance at this time of choosing recruitment stocks that offer diversification (both by industry segment and geographic), an attractive dividend and a strong balance sheet. This is what attracted me to recently buy into one of its peers, Harvey Nash. I hope to find the time to research all of the stocks in the sector that fit this bill over the next while.
(Disclaimer: I am a shareholder in Bank of Ireland plc and RBS plc) There were a few items of note in the financials space. I saw a very bullish MarketWatch piece on Bank of Ireland, which served as a reminder that while a lot of the domestic commentary is ‘doom and gloom’ oriented, many international observers are bulled up on Ireland Inc (Franklin Templeton’s bold Irish sovereign debt move is a good example of this, as is this favourable coverage from CNBC). In other sector news, RBS is planning to shut down its precious metals trading unit, while it has also ceased commodities research. The FT also reported that it is nearing a Libor settlement with US and UK authorities, which would remove another legacy overhang from the group, which remains on my watch list. Finally, I offloaded my second biggest holding, Standard Life, which has had a great run of late and is no longer (in my view) in ‘cheap’ territory.
(Disclaimer: I am a shareholder in Trinity Mirror plc) I was pleased to see that new Trinity Mirror CEO Simon Fox has been set very demanding bonus targets based on the share price performance of the group. It is good to see a remuneration committee flex its muscles in this regard, especially in a way that ensures investors’ and management’s interests are very highly aligned.
In the blogosphere, John Kingham says: “When I look at BT I see a company and an investment that screams mediocrity“.
(Disclaimer: I am a shareholder in Abbey plc) While the macro outlook is challenging, it is interesting to see that two UK focused housebuilders have been the subject of takeover approaches from management in recent weeks. An investment vehicle controlled by Abbey’s Executive Chairman now owns nearly 62% of the company’s shares, with its offer remaining open for acceptances until 1pm (Dublin time) on 7 September 2012. Elsewhere, the Chairman of Redrow has also made a preliminary approach to buy out the firm using a consortium comprising his own investment vehicle and two funds. When management teams, who presumably (!) have access to better information than the likes of you and me, are making such moves, this suggests to me that there is decent value still to be had in the sector.
Staying with UK stocks, I sold out of Marston’s this morning. My reasons for doing so were twofold. Firstly, the three catalysts that had been identified for the stock (The Queen’s Jubilee, Euro 2012 and The Olympics) are all over and I am guessing that the regular newsflow from the many quoted UK pub groups means that the impact of these have all been priced in. Secondly, the shares have increased by over 25% (in euro terms) since I added it to the portfolio earlier this year. You can read about why I was originally attracted to Marston’s here. In terms of where the proceeds are being recycled into (Harvey Nash plc), I will upload a blog later today outlining my rationale for the inclusion of ‘an old friend’ back in the portfolio.
In other food & beverage sector news, tropical produce importer Fyffes today raised its full-year adjusted EBITA guidance to a range of €28-33m versus the previous €25-30m. This improved outlook is based on decent organic growth and FX effects in H1 2012. Extrapolating from the adjusted EBITA of €23.3m Fyffes achieved in the first half of the year and adjusted diluted EPS of 6.48c in the same period, this points to full-year earnings of at least 8.5c, putting the stock on less than 6x earnings, so clearly cheap. Its sister company, Total Produce, which I hold, reports its interim results tomorrow.
(Disclaimer: I am a shareholder in Smurfit Kappa plc) There was a bit of news out of Smurfit Kappa Group since my last update. This morning it announced the launch of a senior secured notes offering, which will raise €200m and $250m, maturing in 2018. The proceeds will be used to repay all of the existing 7.75% senior subordinated notes due in 2015. Given the relatively low rates on offer for similar rated debt at this time, this should, I estimate, shave at least €7m from SKG’s annual interest bill, as well as extending the weighted average maturity of its debt, which reduces the perceived riskiness around the group. In all, a win-win move for Smurfit Kappa. Elsewhere, the group is to invest €28m in a new bag-in-box facility in Spain, which is a further sign of how Smurfit Kappa’s improved financial position is giving it enhanced flexibility on both the M&A and capex fronts.
(Disclaimer: I am a shareholder in Independent News & Media plc) It was confirmed that total Irish newspaper advertising declined 10% in the first 6 months of 2012. Annualising it, and putting in a little bit of a kicker for Christmas related spending, means that it’s still a circa €180m market, so not to be sniffed at despite the confident predictions of certain ‘new media’ devotees who assure me that ‘old media’ is completely toast. While I don’t for one moment dispute that old media is in long-term structural decline, my central thesis on the sector remains that it will not disappear for many years to come, with larger newspaper groups (such as INM) being able to mitigate against the effects of a shrinking market by gaining share as weaker competitors exit the industry. Of course, the extent to which equity investors can benefit from this depends on how successfully INM can prevail over its liabilities, and in this regard I was pleased to read reports of a third bidder entering the fray for INM’s South African unit. The more the merrier, clearly, as this should mean a satisfactory sale price for the business.
In the blogosphere, I was pleased to see the launch of two new blogs by Paul Curtis and Mark Murnane. I’ll be updating the blogroll later today – if there are any other investment and/or economics sites you think I should be following, please suggest them in the comments section below.
Since my last update Greencore announced a bolt-on acquisition, buying a ready meal facility from the Hain Daniels Group. This will help support the market share gains the group has been achieving in that segment in the UK. Furthermore, it is encouraging to see this additional capacity has been delivered through acquisition rather than greenfield investment, given that any incremental industry capacity would give the multiples something with which to play food manufacturers off against each other.
Elsewhere in the food and beverage sector, Diageo released its full-year results. Davy provides a good summary of them here, while the presentation is also well worth a look. I’m a big fan of Diageo’s business model, which offers strong diversification both in terms of geography and product categories, and also a play on the emerging middle classes in the developing world. However, trading on a PE approaching 17x, it is not one for me at this point.
(Disclaimer: I am a shareholder in Abbey plc) Yesterday afternoon the independent directors of Abbey released their response document following the recent receipt of a mandatory offer from Gallagher Holdings. Unusually, the directors have opted to sit on the fence and not issue a firm recommendation to shareholders on whether or not they should accept this offer, preferring instead to set out the pros and cons of the proposed takeover. I can’t help but wonder if Abbey’s independent directors would have come down more on the side of the Gallagher bid had the offer being pitched much closer to the firm’s NAV.
(Disclaimer: I am a shareholder in RBS plc) The Financial Times reported that RBS is under investigation in the US over alleged dealings with Iran. Should RBS be shown to have broken the US’ rules, I assume the damage will be confined to a manageable sum, as we recently saw with Standard Chartered’s £215m fine. This would represent a third hit to the group after the IT debacle and LIBOR issues earlier this summer, but given the one-off (and, in two of the three cases, legacy) nature of these problems I wouldn’t be too concerned. Regular readers of this blog will be aware that I am presently taking a contrarian view on RBS and am considering raising my shareholding in the business, which is trading on less than 0.5x NAV and which is unloved as the market focuses on one-off issues instead of the recovery in profits that is clearly underway.
Staying with the banks, IBRC, which comprises the former Anglo Irish Bank and Irish Nationwide Building Society, released its interim results this morning. An examination of the IBRC loanbook reveals a grim picture, with 76% of loans (pre-provisions) at the end of H1 2012 classified as either past due or impaired (end 2011: 72%). In terms of the different segments of the loan book, the percentages classified as either past due or impaired are as follows: Commercial 76%, Residential 75%, Business Banking 79%, Residential Mortgages 59% and ‘Other Lending’ 80%. The elevated levels evident across all components of the loan book starkly illustrates the challenges facing the group (and, by extension, the Irish taxpayer). Gross customer lending was -5.5% in the first 6 months of 2012 to €27.5bn, with the stock of loans -5.4% in Ireland, -6.4% in the UK and flat in the US (this may be down to USD strength). Provisions were €1.1bn in H1 2012, so still at worrying levels (the 2011 total was €1.6bn). On the operational side, IBRC continues to manage costs relatively tightly – operating expenses fell 18% year-on-year in H1 2012. However, the costs of running the bank are the least of our concerns. In terms of what the ultimate bill for IBRC will be, clearly, this is highly susceptible to macroeconomic and political factors over which the bank has no control. At the end of June it had €1.5bn in surplus regulatory capital, so for the time being at least management’s guidance that the final bill will come in below the Central Bank / Financial Regulator’s estimates looks OK but, clearly, the risks at this time appear to be skewed to the downside.
The past week has been quite hectic, with two weddings and the deadline for completing a 200 page report for the company I’m on an internship with as part of my MBA studies to safely negotiate. Hence, blogging has been a necessary casualty of my lack of free time. So, what has been happening since my last update?
(Disclaimer: I am a shareholder in Ryanair plc) Ryanair released its Q1 results. These contained few surprises. The company is sticking to its FY net income guidance of a range of €400-440m which is reasonable in light of the early stage of its financial year. However, with the likes of Easyjet and Aer Lingus recently upping their forecasts, allied to Europe’s biggest LCC’s form for low-balling guidance (it upgraded its guidance twice in its last financial year) and healthy passenger numbers, I suspect the risks to Ryanair’s profits lie to the upside.
Elsewhere, as noted above Aer Lingus upgraded its FY earnings outlook in its interim results. Having previously said that 2012 profits “should match” the 2011 out-turn, it now says they will “at least match” last year’s performance. One aspect of the Aer Lingus results release that was particularly encouraging was the long haul performance – compared to the same period last year, in H1 2012 Aer Lingus’ long haul passenger numbers, load factors and yields all increased by 11.0%, 5.0% and 9.0% respectively. This is a magnificent performance given the tough economic backdrop and illustrates the success of Aer Lingus’ moves to leverage Dublin and Shannon, the only airports in Europe offering US pre-clearance, to win transatlantic customers whose journeys originated in other parts of Europe. This means that news of United Airlines terminating its Madrid-Dulles JV with Aer Lingus is not particularly concerning given that Aer Lingus clearly has sufficient demand to justify redeploying the Airbus A330 currently on the JV route to its own branded Ireland – North America routes.
(Disclaimer: I am a shareholder in BP plc) In the energy space BP released its interim results. Market reaction was extremely downbeat, but I am (perhaps foolishly?) taking a contrarian view to this and assuming that its run of disappointments means that management will either: (i) come up with shareholder-friendly goodies (a large buyback, chunkier dividends, sensible M&A) to revitalise the share price; or (ii) come under irresistible pressure from investors to unlock the value in the firm through a break-up of the company.
(Disclaimer: I am a shareholder in Trinity Mirror plc) In the TMT segment Trinity Mirror erupted this week, with its share price gaining circa 40%, helped by strong interim results. Regular readers of this blog will know that I’ve been an uber-bull on this name for a while, based on my view that it offers a compelling mix of: (i) Very strong cashflows; (ii) Substantial tangible asset backing; (iii) Rapid deleveraging facilitating a re-rating for the equity component of the EV; and (iv) An absurdly low (and unwarranted) valuation. I’m pleased to see that my central thesis is playing out, with the first six months of 2012 bringing a £60.5m reduction in its combined net debt and pension deficit, an amount equal to 75% of what TNI’s market cap stood at on Tuesday. The catapulting of its share price since then indicates that the market may be starting to wake up to this reality. I suspect the TNI story has a lot further to run – if you annualise the H1 earnings the stock is trading on a forward PE multiple of only 2.3x!
In the food sector Greencore issued an upbeat trading statement which revealed healthy underlying volume growth allied to management expressing confidence that it can meet full-year earnings expectations.
(Disclaimer: I am a shareholder in AIB plc and RBS plc) Switching to financials, I was surprised to read criticism of AIB’s announcement that it is to close a number of branches as part of its efforts to right-size its cost base. As its recent interim results showed, AIB is currently loss-making before you even take provisions into account – which is a clearly unsustainable position. Moreover, the vast majority of transactions these days are done using ATMs, cards and internet banking. Due to all of this, AIB (and indeed its domestic competitors) simply does not need as many branches as it did before.
Elsewhere, RBS issued an in-line set of interim results. While LIBOR, IT problems and a daft total nationalisation suggestion by elements within the British government have dominated headlines around the group, it is continuing to make impressive progress in terms of repairing its balance sheet. Investec’s Ian Gordon makes some good points around the numbers (and indeed the outlook for RBS) here. One aspect of the results that I found concerning was Ulster Bank’s impairments. RBS’ Irish unit saw impairments widen to £323m in Q2 2012 from £269m a year earlier, with mortgages to blame for this worsening trend. This has ominous read-through for the other banks operating in the Irish market.
(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) In the packaging space Smurfit posted another great set of results, with Q2 EBITDA of €255m coming in right at the top of the range of analyst expectations (€236-255m). Management reaffirmed its full-year EBITDA and net debt targets, but I suspect the risk to both is to the upside given that the two largest European packaging firms, Smurfit and DS Smith, have both recently announced chunky price increases.
(Disclaimer: I am a shareholder in Abbey plc) There was more good news for my portfolio from the construction sector, with Abbey’s majority shareholder, Charles Gallagher, making an offer to buy out the minority shareholders in the company. The price being offered isn’t exactly stellar, at 0.86x trailing book value, but it’s one I’m happy to accept given that it represents a 42% return on what I paid for the shares in 2009. If only the rest of my investments worked out so well!
The past few days have been pretty quiet on the newsflow front, which has afforded me the opportunity to work on some financial models. I hope to publish a detailed case study on Smurfit Kappa Group later on this week, so those of you who follow the packaging sector might want to keep an eye out for that.
(Disclaimer: I am a shareholder in Abbey plc) This morning housebuilder Abbey released its FY12 results. While the tone was relatively subdued (it should be noted management has form for conservatism) the numbers themselves were pretty good. The firm completed 310 sales in the 12 months to the end of April, +2% year-on-year. Average selling prices were +4% across the group, as a 14% decline in Ireland, which now only represents circa 8% of turnover, was easily offset by a 7% increase in the UK, which accounts for circa 85% of revenue. The balance of Abbey’s activities are in the Czech Republic. Despite shelling out over €20m on share buybacks and landbank purchases, the group finished the year with net cash of €70.1m (56% of the current market cap), -€8.8m year-on-year. Overall, there’s nothing really in the statement for me to alter my narrative on the company, which is: Abbey is an exceptionally well run company, that is overwhelmingly exposed to the attractive South-East England market, with a very strong balance sheet, trading at an unwarranted 25% discount to its NAV. It’s cheap. I like it and would consider adding to my holding.
Since my last update, Aer Lingus says that it’s considering launching domestic flights in Britain. This serves to remind me of the value of the carrier’s Heathrow slots (it has the third highest number of take-off and landing slots and London’s busiest airport), and also of the opportunity it has to maximise the value of these through careful route management. If it secures the Heathrow-Edinburgh route, this will not be the first time Aer Lingus has operated routes originating and terminating outside of Ireland – it previously had a base at Gatwick Airport, while it currently flies a Washington DC – Madrid route on behalf of United Continental.
(Disclaimer: I am a shareholder in Independent News & Media) In the media space, following its recent shuttering of the Offaly Express, Johnston Press closed another Irish local title, Donegal on Sunday. As I’ve noted before, these unfortunate closures will by default result in market share gains for the likes of Independent News & Media, which publishes 13 local titles in Ireland.
In the blogosphere, John Kingham wrote a detailed case study on UTV Media, which he successfully traded in and out of. I covered the stock back in my analyst days (I feature in John’s case study!) and am quite impressed by the progress the company has made in terms of repairing its balance sheet. If only certain other Irish media groups were as successful when it comes to strengthening their financial position!
Speaking of case studies on highly indebted companies, Lewis took a peek at Premier Foods and rightly (in my view) concluded that the debt structure was unlikely to prove benign to equity investors.
(Disclaimer: I am a shareholder in Ryanair plc) Since my last update, two of Aer Lingus’ shareholders came out to say that they will not be supporting Ryanair’s approach for the company. Etihad, which owns just under 3% of the carrier, said “we are not selling“, pledging its support for management, while elsewhere investment fund Matterley, which has a circa €1m stake in Aer Lingus, said Ryanair’s indicated bid level “still undervalues the asset base of the company, before taking account of the valuable slots at Heathrow”, adding “accordingly, the Fund has retained a significant investment”. While these are interesting developments in terms of providing more colour on investors’ intentions, the market is giving us a clear signal on its perception of Ryanair’s chances of success with the shares closing yesterday at €1.07 – some 18% below the price Ryanair says it would be prepared to pay for Aer Lingus.
Staying with Irish plcs, investment fund TVC Holdings issued an update at its AGM yesterday. Management note the wide (29%) discount the shares are trading at relative to its NAV, which I feel is unwarranted given its impressive investment record in recent years. Looking ahead, cash-rich TVC says it believes “there are restructuring opportunities in Ireland and the UK where companies with excessive debt need to raise new equity at attractive terms for new investors”. In terms of opportunities within Ireland, I wonder if TVC will look to leverage its experience in the media sector (it is UTV Media’s largest shareholder with an 18% stake) to help out some of the more geared media players here?
(Disclaimer: I am a shareholder in Datalex plc) Speaking of Irish TMT stocks, I know that I’ve been pushing the bull case for Datalex for a while now, but even I was taken aback by a piece in last weekend’s Sunday Times. The newspaper interviewed United Continental CEO Jeff Smisek, and in the interview he had a go at what he termed the ‘oligopoly GDSs’ such as Amadeus, saying they had “underinvested in their product, as oligopolies always do”. He went on to say: “Our technology is more potent than theirs and we can’t wait for them to catch up”. And who helps United with its online shopping and reservations worldwide? Step forward Ireland’s Datalex.
(Disclaimer: I am a shareholder in RBS plc) There was a lot of news around RBS in recent days. Despite recent setbacks, the bank reaffirmed its target of exiting the APS programme by the end of this year. In theory this will save RBS £500m annually in APS fees, however, the costs of the capital implications of an APS exit are trickier to quantify. Elsewhere, Bloomberg ran an interesting piece on RBS’ efforts to shrink its non-core loanbook. This is an often overlooked part of the group’s story – since 2008 RBS’ non-core assets have shrunk by 70%, or £238bn, which is an impressive performance given the difficult backdrop. However, offloading the remaining 30% is likely to prove to be more a challenge in the near term given how much of it is concentrated in markets where this is a relative paucity of buyers such as Ireland (Ulster Bank’s share of RBS’ non-core loanbook was £14.4bn at the end of 2011). Overall, I continue to monitor RBS closely but I see no reason, given the present uncertainty around it, to increase my exposure to it just yet.
Ireland’s so-called ‘bad bank’ NAMA said that it no longer expects to make a profit. Given this, shall we say, “tempering of expectations”, can we still be confident of IBRC’s (Anglo Irish Bank & Irish Nationwide) guidance on how much it will ultimately cost the taxpayer?
(Disclaimer: I am a shareholder in BP plc) Bloomberg yesterday reported that BP’s Russian partners are only willing to buy half of its stake in the TNK-BP venture. Given how much trouble BP has had as a 50% shareholder in that venture, I cannot see a scenario where BP is happy to reduce its holding to a minority one. With Gulf of Mexico related payments nearing their end, a successful departure from TNK-BP would equip BP with the financial firepower to consider significant acquisitions elsewhere.
(Disclaimer: I am a shareholder in Abbey and ICG) In the blogosphere, Richard Beddard covered the current focus on income stocks. Given the present uncertainty in the markets, it is unsurprising to see people touting income over the naked pursuit of capital gains at this time. What I found particularly interesting in his post was the comment about companies’ reluctance to invest. This is a definite concern of mine at present – we’ve seen many cash-rich Irish plcs, including Abbey and ICG, launch share buybacks in recent times – and while this is a ‘low risk’ way of flattering earnings per share, I wonder would shareholders’ interests be better served in the long-run through the money being used to support the expansion of those businesses. In the case of Abbey, distressed landbanks of housing are hardly difficult to find in this market – and Abbey operates across three countries (here, the UK and the Czech Republic). For ICG, might it consider a move for something like the Isle of Man Steam Packet Company, which was taken over by the banks (for which it is presumably a non-core asset!) last year? Or given how many PE deals took place during the boom years in the port infrastructure space, particularly in the UK, might there be some distressed assets there worth picking up?
Staying with the blogosphere, John Kingham wrote a good piece asking: “When is a good time to invest in the stock market?“. His words are worth sharing with any retail investors you know – the tragedy of the market is that often it’s the private investor who is last to buy into the rally and first to sell at the trough.
And finally, also in the blogosphere, the excellent Kelpie Capital presents the bear case for UK housing.
This is a bit of a ‘catch-up’ blog as I spent much of the past couple of days building a financial model for AIB to support my analysis on that stock.
(Disclaimer: I am a shareholder in BP plc and PetroNeft plc) The energy sector has seen some very interesting developments. Parkmead, a vehicle led by ex Dana Petroleum executives, agreed to buy DEO Petroleum for £12.7m earlier this week, which hopefully signals a resumption of the frenetic M&A activity within the sector that we saw earlier this year. Elsewhere, Dragon Oil entered the Iraqi market. While the award of one exploration licence is hardly a game-changer for the stock, it is encouraging to see it continue to execute on its strategy of geographic diversification. Going the other way is BP, which said this morning that it is to “pursue a potential sale of its interest in TNK-BP“. I am delighted to hear this news given that the venture seemed to be more trouble than it is worth. In other Russian oil sector news, PetroNeft announced that it has agreed a new $15m debt facility, while also saying that its output is “stable” at 2,200bopd (in its last update in early April output was running at 2,300bopd). PetroNeft’s shares moved higher on the back of the update as some investors had feared that a rights issue / placing would accompany any new facility, but of course it should be noted that $15m doesn’t go too far in this industry.
(Disclaimer: I am a shareholder in Datong plc) Yorkshire-based spy gadget maker Datong released solid H1 results. As previously guided, the first half of the year was unusually quiet, but very bullish guidance saw the shares initially gain well over 30%. The firm’s order intake during April and May was £3.1m, versus £1.2m in the same period last year, supporting management’s previous forecast of an unusually strong H2. Datong had net cash of £2.1m at the end of H1, or roughly 55% of its market capitalisation. NAV of £10m works out at 73 pence per share, a huge premium to the 28.5p the shares currently trade at. While management has been doing a good job in recent times, given Datong’s very poor liquidity and limited resources I can’t help but wonder if investors would be best served if the group were to sell itself off to a larger defence business.
In the support services space, Harvey Nash, a staffer I’ve held in the past, released a solid Q1 IMS today. Unsurprisingly, given recent positive signals from the US economy, it sees the strongest growth across its operations there, while the UK and continental Europe is slower. HVN remains on my watchlist, but for the time being I’m focusing on trying to realise value across my portfolio and reduce the number of positions I have as opposed to adding more names to it.
(Disclaimer: I am a shareholder in Abbey plc) In the construction space, London-focused housebuilder Telford Homes released a strong set of results, with profits coming in ahead of market expectations. The company raised its full-year dividend by 20% in a strong expression of confidence about the outlook, while in terms of its forecasts for this financial year management say they expect to report a “substantial increase in profit before tax”. Overall, the signs from the South-East England property market remain very robust and this has positive implications for Irish listed housebuilder Abbey, which derives the majority of its business from that part of the UK.
In the food and beverage sector, I was interested to learn that Ireland’s Glanbia produces 18% of global output of American-type cheese. Elsewhere, pub group Fuller, Smith & Turner’s full-year results revealed nothing new relative to what its peers have been saying of late, namely that the sector is betting on a positive impact on demand arising from the Jubilee, Olympics and Euro 2012.
(Disclaimer: I am a shareholder in Trinity Mirror plc) In the media sector, there was a considerable amount of intrigue around Trinity Mirror. The group dispensed with the services of the editors of the Daily Mirror and Sunday Mirror, announcing that they will be merging the titles. Rival publication The Daily Telegraph claims that the departed pair were planning a bid for the group, with the support of an unnamed ‘wealthy figure’. Regardless of whether or not there’s any truth to that story, to me the stock is great value given its strong asset backing (freehold property worth 69p/share, or 2.5x the current share price) and its low rating (1.2x PE, 5.2x EV/EBIT on my estimates for FY12), while on the liability side it has made material progress in cutting net debt in the year-to-date, while the pension deficit is, I believe, very manageable. Hence, I’ve doubled my stake in Trinity Mirror today.
Turning to the macro space, this article served as a useful reminder of what often happens when countries impose capital controls.
In the blogosphere, Calum did a good write-up on BSkyB, but I would dissent from his conclusion about the valuation, chiefly because I’m disinclined to pay double-digit multiples for stocks when there are so many names trading on low single-digit multiples in this market. Lewis maintained his impressive blogging work-rate with a piece on Tullett Prebon. Like Lewis that isn’t an area I’m particularly familiar with, so despite being optically cheap my instinct is to stay on the sidelines.
The next couple of weeks are likely to be very quiet on the blog as I face into the main body of exams on the MBA. Sadly, the volume of newsflow is proving to be anything but quiet!
(Disclaimer: I am a shareholder in Irish Life & Permanent plc) It was confirmed today that IL&P’s permanent tsb unit will have an independent future, following months of uncertainty. The bank will submit a restructuring plan to the European Commission before the end of June, with the group splitting into three – CHL (UK loans), which has a loan book of €7.1bn, permanent tsb (the ‘good bank’, with the healthier loans), which has a loan book of €14.2bn, and AMU (Asset Management Unit, the ‘bad bank’), which has a loan book of €12.5bn. I suspect that the sale process for the UK loan book will be re-started once the Commission approves the restructuring, while for the rest of the loan book there are some significant questions outstanding on both capital and funding. In all, I think it’s too early to take a view on whether or not IL&P is worth buying at these levels.
(Disclaimer: I am a shareholder in Abbey plc) Switching to the construction sector, I’ve recently noted improving newsflow from the UK housebuilders, which bodes well for Irish listed (but chiefly south-east England focused) Abbey plc. One of its peers, Redrow, announced that it is launching a placing and open offer to raise £80m to help fund an expansion of its housebuilding operations. ‘So what?’, you might well ask. Well, what makes this noteworthy is that the placing is being done at an 11% premium to where the shares closed at the day before the announcement was made, with the placing fully underwritten by the Chairman. If he wasn’t bulled up on the prospects for the UK housing market, he wouldn’t be comfortable to underwrite a placing at a premium to the market price. Another UK housebuilder, Taylor Wimpey, earlier today said: “UK housing market conditions remain stable and the Group is trading at the upper end of our expectations“. In all, the newsflow from this sector continues to get better.
(Disclaimer: I am a shareholder in CRH plc) Elsewhere, I was pleased to read confirmation that Semapa will pay CRH €574m for its 49% stake in Secil. This will cut the group’s net debt / EBITDA ratio to 1.5x or so by end-2012, which underlines CRH’s capacity for a step-up in M&A activity.
(Disclaimer: I am a shareholder in Independent News & Media plc and Trinity Mirror plc) In the TMT sector, regional newspaper group Johnston Press published its 2011 results yesterday. These revealed continued difficult conditions in Ireland, with advertising revenues dropping 19.1% in 2011, which was the same rate of decline as in 2010. In terms of the read-through for INM, this comes as little surprise (INM referred to “very challenging trading conditions” in Ireland in its 2011 results on March 22), but I do suspect (emphasis) that the parts of the country where Johnston Press’ portfolio of Irish assets are located are doing worse (from an economic perspective) than where INM’s portfolio of Irish regional assets is located. From the perspective of Trinity Mirror, I note comments from Johnston Press that it is moving a number of daily publications to weekly editions, which fits with my narrative of the UK newspaper sector becoming right-sized. Elsewhere, I was pleased to see share purchases in Independent News & Media by both the new chairman and the new CEO.
Elsewhere, regular blog readers will know that Playtech has been a constant thorn in my side in the 18 months or so since I bought into it. I was delighted to take the opportunity to sell out of it on Tuesday afternoon at 381p/share, clearing all of 1p/share profit (in constant currency terms) relative to my entry level. I’m mulling over what to do with the proceeds and some other cash reserves – I have 20 live positions in the portfolio which is just about as many as I can safely manage given the other pressures on my time. What I would like to buy is more exposure to sterling denominated assets (given the near-term political uncertainty in Euroland) so I’m considering raising my existing shareholding in one or more of Trinity Mirror, RBS and BP.
Pharma group Elan posted “solid” Q1 results earlier today, with management saying that it’s on track to achieve its full-year financial guidance.
The Cove Energy takeover story took another twist as Royal Dutch Shell made a recommended cash offer for the company. As noted before, the sale of Cove will mean a nice windfall for a lot of Irish private investors.
What an eventful 48 hours it’s been since my last update!
(Disclaimer: I am a shareholder in Independent News & Media plc and Trinity Mirror plc) The media sector has produced much excitement, with boardroom ructions and rumours of stakebuilding to the fore. This morning two large prints in INM – one for 10m shares, the other for 3m, were recorded. Combined this is equivalent to 2.4% of the company. RTE hints that the buyer is not connected to the three billionaires (Tony O’Reilly & family, Dermot Desmond and Denis O’Brien) on the INM register, which adds a further touch of intrigue to the stock. This evening it was confirmed that Gavin O’Reilly has stepped down as INM CEO, to be replaced by Vincent Crowley. I welcome Crowley’s appointment – I met him quite a few times when I covered INM as a sell-side analyst some years ago and was very impressed by him. He has a good reputation for tight cost management (earned at a time when the Irish economy was thriving and few executives here were as focused on cost take-out as he was back then) and any strong action by him on this front could see a decent re-rating for the stock, which is capitalised at only €134m. I take encouragement from INM’s statement this evening that Crowley “has the unanimous support of the Board”, which hopefully will put to rest the ugly (and very public) feuding that has made the underlying performance of the group something of a side-show for too long. In an ideal world this change will pave the way for the group to focus 100% on the main task at hand, i.e. maximising cash generation to fix the balance sheet and enhance shareholder value. Elsewhere in the media sector, in the UK DMGT’s trading update revealed weakening trends in the past three months, which doesn’t bode well for the likes of Trinity Mirror and Johnston Press.
(Disclaimer: I am a shareholder in Tesco plc) Tesco released its results and a strategy update. The results were in line, and management sees the 2012/13 performance (yes, I know it’s early days) meeting forecasts. On the strategy front, there was nothing new that I saw given the extensive media previews / leaks (delete where applicable) in the run up to the official announcement. Obviously time will tell if the strategic objectives are met, but I’m willing to give Tesco the benefit of the doubt given its proven track record, strong brand (I know some people dispute this, but I doubt they’d slap Tesco as a prefix to all sorts of new ventures if the brand wasn’t that good) and solid market positions in many of its key geographies. Many analysts seem to concur. Valuhunter did up a good piece on Tesco here that’s worth a look.
This is absolutely brilliant – check out Paddy Power’s comic-book style annual report.
For those of you who follow the oil sector, Dragon Oil’s CEO made some interesting comments about its future strategy in this video interview.
(Disclaimer: I am a shareholder in Abbey plc) Following on from recent upbeat comments from Telford Homes, Persimmon issued an IMS laden with news of rising orders, margins and cashflow. This all gives me further comfort on my position in Abbey.
On the macro front, I was interested to read that authorities zoned enough land for residential to accommodate double the population of Ireland. I’d love to find the genius who thought it would be a good idea to have local councils give an input into this process.
Speaking of housing, Chinese house prices fell in 46 of the 70 biggest cities month-on-month in March (in 37 out of the 70 on a year-on-year basis). I have repeatedly identified this area as a serious problem for China, most recently here.
And finally, here’s the IMF’s ultimate guide to which countries are the most vulnerable in terms of debt/leverage. No surprise to see Ireland is covered in red ink.
This blog has sadly become something of a casualty of late as the main body of my exams are now less than three weeks away and I also have two articles for Business & Finance magazine due in the middle of this week!
(Disclaimer: I am a shareholder in France Telecom plc) There was quite a bit of news around France Telecom since my last update. First, the operator finalised the terms of its buyout of Egypt’s Mobinil. This was something I already had penciled into my forecasts for the company, so no surprise there. However, what did surprise me was another story I spotted involving France Telecom, which said that the European Commission is investigating whether France’s telecom regulator was too generous in setting the rates it allows new mobile operator Iliad to charge other companies for calls into its network. While we’ll wait and see what comes of that, anything that undermines Iliad’s Ryanair-style entry into the French mobile market would be good news for France Telecom (yes, I am speaking from a hopelessly conflicted viewpoint!)
Seeing as I’ve mentioned Ryanair, I was also interested to read that Qantas has made the world’s first commercial biofuel flight. This is an interesting development which I’ll be keeping tabs on, especially given that the modest ‘carbon footprint’ involved would certainly help offset some of the EU’s carbon taxes if it was to be rolled out in an economical way in this part of the world.
In other energy sector related news, Dragon Oil issued an interim management statement this morning, in which it revealed average Q1 production of 70.6kbopd (the 2011 average was 61.5kbopd), and retained its 2012 gross output growth target of 15%. I didn’t see any ‘new news’ within the statement, but with the group having reached its 2012 output growth target of 15% in Q1, I am guessing that the risks on the production front lie to the upside for Dragon Oil.
(Disclaimer: I am a shareholder in Independent News & Media plc) In Friday’s Irish Times former INM director Leslie Buckley called for regime change at the publisher (see here and here). Expectations of a showdown at the AGM remain undiminished. But, of course, one would prefer if the dirty linen wasn’t aired in public, regardless of the grievances involved.
(Disclaimer: I am a shareholder in Abbey plc and PetroNeft plc) While reading Edinburgh based microcap fund Nettle Capital’s Q1 2012 factsheet I was interested to learn that they hold Irish listed Abbey, CPL Resources and PetroNeft in their European fund. Great minds and all that!
Speaking of Abbey, UK housebuilder Telford Homes issued a strong trading update earlier today in which it said profits would beat expectations due to strong demand. Encouragingly, it has acquired sites that add 1,200 properties to the development pipeline over the past year, which is a vote of confidence in the outlook for the industry. Given Telford’s focus on the south-east of England, which is Abbey’s main area of operations, the read-through for Abbey from this is positive.
Switching to macro news, the OECD said that Ireland may need a mini-budget to meet its fiscal targets. This comes as no surprise to me, given my bearish view on the state of the public finances. I despair at the lack of a proper national debate about the fiscal crisis – which has left the door wide open for populist politicians and other vested interests to pretend that this mess can be easily solved through levying punitive taxes on some imaginary army of fabulously wealthy individuals.
On a lighter note, as a current MBA student at Smurfit, I’ve been thrilled to read of the Smurfit rugby team‘s exploits at the MBA Rugby World Cup in North Carolina – having taken a host of scalps along the way (Duke, Columbia, London Business School, Wharton) the icing on the cake came overnight with the Irish team defeating Harvard University to become world champions for a record tenth time. Congratulations in particular to my classmates Justin Thomas, John O’Loughlin, John MacMahon, Donnchadh Casey, Conor Price, David Pierce and Conor Beirne who were all part of the squad.