Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Datong

Market Musings 5/7/2012

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It’s been a very busy few days on the newsflow front, so once more this blog represents a catch-up on what’s been happening on a sector-by-sector basis.

 

(Disclaimer: I am a shareholder in CRH plc) CRH issued a development update in which it revealed €0.25bn of investment and acquisition initiatives in H1 2012.

 

(Disclaimer: I am a shareholder in Datalex plc) We got some more information on Datalex’s partnership with SITA, which was first disclosed in Datalex’s recent results. Given SITA’s large scale relative to the Irish based travel software provider, this could prove to be very significant for Datalex. I’m still quite bullish on Datalex and see more upside for it from here given how scalable its business model is, and on this note partnerships such as the one with SITA should help open doors for it with more travel companies.

 

(Disclaimer: I am a shareholder in Ryanair plc) Speaking of travel companies, we saw traffic stats released this week by both Ryanair and Aer Lingus. For Ryanair, its June passenger stats provide us with the full picture for Q1 of its financial year. Europe’s biggest LCC carried 5.7% more passengers in Q1 relative to year earlier levels. This compares with guidance of 7% growth in H1, and it should be noted that Q2 is the key period for Ryanair during the year. Aer Lingus’ June passenger stats, released this morning, reveal another strong performance, particularly on the long-haul side, where load factors rose 9ppt to 92.4%.

 

Donegal Creameries issued an AGM statement that revealed a “satisfactory” performance, with management sticking to full-year earnings guidance.

 

TMF wrote a piece on “five smallcaps that could double“. Of the five, I hold Datong, and given its most recently reported NAV of 72.7p a share is well above its share price at the time of writing (31.0p) I think its inclusion on the list is more than warranted, provided that it can deliver on its promises of a recovery in revenues and earnings.

 

Switching to macro news, taking advantage of the enthusiasm that followed the recent EU summit (although the finer details still need to be worked out), Ireland’s NTMA is issuing €500m of 3 month treasury bills today. Obviously, the amount is very small relative to Ireland’s funding needs (and existing stock of debt), and the maturity is short term (and falls within the Troika’s programme, which removes a lot of the risk for buyers), so while it is a welcome development it is hardly a game-changer for Ireland.

 

Speaking of welcome developments for Ireland, according to Reuters some currency strategists expect sterling to rise against the euro, which is good news on a number of different levels. It makes Irish exports into the UK (which buys a sixth of our exports) more competitive, while for Irish plcs that generate a significant proportion of their revenues in sterling (e.g. Paddy Power, Kingspan, Kerry and DCC) but who report in euro this provides a tailwind for earnings.

 

But to move from welcome developments to unwelcome ones, Ireland’s H1 2012 Exchequer Returns reveal continued grounds for concern about the government’s fiscal trajectory. While much of the media commentary has focused on where the numbers are at relative to expectations, the reality is that there has been no underlying improvement in Ireland’s fiscal position. If you strip out significant one-off items, such as the promissory note, the cost of acquiring Irish Life and the loan to the insurance compensation fund, the underlying deficit for H1 2012, at €7.7bn, is only 1% below the underlying deficit for H1 2011. Annualising that means that Ireland is running an underlying deficit of over €3,000 a year for every man, woman and child in the State.

 

I recently reviewed how my 2012 investment picks have performed. Many of my friends in the UK and Irish investment blogosphere have followed suit, namely: John Kingham, Mark Carter, Wexboy, Mr. Contrarian and Expecting Value. Of course, none of us can be said to be investing with a 6 month time horizon in mind, but at the same time it is useful to revisit how portfolios have performed with a view to discerning what, if any, takeaways can be taken from that in order to refine the investment strategy going forward.

 

Speaking of the blogosphere, Calum did an excellent write-up of Dairy Crest that’s worth checking out.

 

And finally, here is the trailer for the Bollywood film that was partly filmed in Dublin.

Written by Philip O'Sullivan

July 5, 2012 at 9:35 am

Market Musings 1/6/2012

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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.

Written by Philip O'Sullivan

June 1, 2012 at 10:30 am

Market Musings 24/2/2012

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It’s been a very hectic few days in terms of newsflow. Let’s recap on what’s been happening:

 

To kick off with the food sector, Kerry Group issued solid FY11 results, with earnings coming in towards the top end of its guided range. Management sees a healthy 7-10% growth in earnings in 2012, but I wouldn’t be surprised if that forecast is augmented by acquisition activity over the coming months.

 

(Disclaimer: I am a shareholder in RBS plc) The financial sector also featured heavily in recent days. Bloomberg posted a very bullish piece on the outlook for Dublin’s commercial real estate sector, which has positive read-through for the domestic banks here along with RBS and, let’s not forget, NAMA. Speaking of RBS, the bank issued full-year results yesterday that had a few interesting pointers for Ireland Inc. Total impairments at its Ulster Bank unit fell 4% yoy in 2011, although mortgage impairments were nearly 2x 2010 levels last year (£570m vs £294m). In terms of the operating performance, the NIM declined by 7bps to 1.77%, which is not bad, while operating profits were 10% lower at £360m. While I suspect that impairments for the sector have peaked in Ireland, there will definitely be a big change in the mix of impairments in 2012 as residential mortgage books deteriorate further due to the underlying economic fundamentals here.

 

(Disclaimer: I am a shareholder in CRH plc) Turning to the construction sector, CRH announced a number of management changes at its US operations. This is an important development, as (i) it shows the management cadre’s experience and strength in depth; which (ii) offsets the effect of departures to rivals e.g. Summit Materials. CRH also announced that Nicky Hartery will take over as its next Chairman in May. Elsewhere, as expected Readymix agreed to a takeover by its biggest shareholder, Cemex.

 

(Disclaimer: I have an indirect shareholding in Dragon Oil) In the energy space, Dragon Oil issued FY11 results that contained few surprises given the detailed guidance provided by management in the run-up to them. Elsewhere, Shell offered $1.6bn or £1.95/share for Cove Energy, which should mean a nice windfall for a lot of Irish private investors. I’ve written before about how I believe one of the themes in the energy space this year will be cash-rich large caps picking up small caps, and Shell’s move for Cove continues a narrative that also features Dragon Oil’s approach for Bowleven and Premier Oil’s acquisition of EnCore.

 

(Disclaimer: I am a shareholder in Irish Continental Group plc) I was interested to see that HSBC is forecasting significant growth in Irish trade volumes over the coming 10-15 years. Should this come to pass, a key beneficiary of it will be ICG, which is a major player in both LoLo (containers) and RoRo (trucks) freight here.

 

(Disclaimer: I am a shareholder in France Telecom plc, Independent News & Media plc and Datong plc) Switching to the TMT sector, I was unsurprised to read that France Telecom has cut its dividend. It’s a stock I really need to do some work on to see if there’s merit in keeping it in my portfolio or not. Elsewhere, Datong issued a statement at its AGM yesterday that revealed good progress on cost takeout and optimism on sales growth for the full-year. On the other side of the world, Independent News & Media’s Australasian associate APN posted in-line underlying profits for FY11. There were some boardroom ructions at UTV Media, which I suspect could put the company into play especially given how concentrated the share register is. The firm’s biggest shareholder, TVC Holdings, posted this response to yesterday’s developments.

 

In the blogosphere, John Kingham did up an interesting piece on Centaur Media, with a focus on its intangible assets. Speaking of intangibles, Lewis did a good article on Communisis that’s well worth a read. He also wrote a piece on Haynes Publishing that’s worth checking out. Wexboy completed (at least for now!) his impressive Great Irish Share Valuation Project.

Market Musings 18/2/2012

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As has been the norm so far this month we’ve seen a lot of newsflow in recent days from right across the market. Let’s cover what’s been happening on a sector-by-sector basis.

 

(Disclaimer: I am a shareholder in France Telecom plc) In the telecoms space, I was interested to read that Deutsche Telekom is considering exiting its Everything Everywhere jv with France Telecom in the UK. It will be interesting to see how the latter responds, given that France Telecom has been exiting operations in Europe of late, selling its Austrian and Swiss businesses. Bernstein reckons that it is likely to IPO Everything Everywhere, which would be my preferred choice – France Telecom needs to slash its vast net debt (€30.3bn at the end of H1 2011) and this, along with the proceeds of the recent disposals, could put a chunky dent into it. With the French state, France Telecom’s biggest shareholder, losing its AAA rating from S&P earlier this year and Moody’s threatening to follow suit, I think heavily indebted corporates in that market are going to come under increasing pressure unless they can get their balance sheets in order. Against that I note that FTE is considering spending $2bn to buy out its Egyptian partner in that market, but the costs of that potential deal are significantly outweighed by the disposal proceeds outlined above.

 

In the construction sector, I was interested to read that the company that bought out Wolseley’s assets in the Irish market has been placed into examinership. While time will tell what the outcome of that process is, any closures would likely benefit Grafton, which has 67 merchanting outlets and 49 DIY retailing outlets in Ireland. Elsewhere in the sector Valuhunter did up a stonking blog on housebuilder Bellway in which he makes a very interesting observation – the UK benefits cap may lead to some internal migration as people move from the more expensive south-east of England to other regions. I am perplexed to read hand-wringing articles on the benefits cap such as this one – surely it is unreasonable to expect taxpayers to pay for people to live in the most expensive areas?

 

(Disclaimer: I am a shareholder in Total Produce plc) Switching to food companies, I was interested to read Indian media reports (this doesn’t appear to have been picked up by either the Irish media or any of the domestic brokers here yet) that Tata has ‘dissolved’ its joint venture with Total Produce. This is disappointing, as there’s no denying that the jv offered the greatest organic growth potential of all of Total Produce’s units. However, we have to frame that disappointment in the context that it was only a very small part of Total Produce’s business – I estimate only 1 or 2% of turnover.

 

(Disclaimer: I am a shareholder in PetroNeft and an indirect shareholder in Dragon Oil) In the energy sector, PetroNeft issued a ghastly trading update, in which it said production has slipped to 2.3kbopd versus 3kbopd at end-2011. This is eerily reminiscent of the technical problems that dogged the stock throughout 2011, and hence it was no surprise to see the share price close down nearly 40% yesterday. Sentiment will not be helped by an RNS posted after the market close by JP Morgan, which said that it has followed up its recent share sale by offloading a further 5m shares. JP Morgan has 6.8% of PetroNeft’s shares remaining, and were it to run its stake down to zero that would mean the market will have to digest about 8x the ADV. I can’t see a queue of buyers for that at the moment. Elsewhere, Dragon Oil said that it is considering making a bid for Bowleven. Contrarian Investor UK welcomes the return of M&A within the sector.

 

In the recruitment space, Harvey Nash issued a strong trading update. It’s one that I sold out of early last year – in hindsight, with very good timing – but I have been keeping an eye on it because I like its conservatism, diversification and excellent management team. While there is no denying that it’s cheap – it trades on a single digit PE and yields around 4.5%I suspect there will come a better time to buy Harvey Nash later this year – EPS momentum is set to fall off a cliff from the +16% in the 12 months to end-January 2012 to +4% in the current financial year, before accelerating once again to +34% in the 12 months to end-January 2014.

 

(Disclaimer: I am a shareholder in Allied Irish Banks plc, Bank of Ireland plc and Irish Life & Permanent plc) I was interested to read that IBRC, the bad bank formerly known as Anglo Irish Bank, is “anxious” to take on the tracker mortgages that are causing so much hurt for AIB and IL&P. Bank of Ireland reports results on Monday that will hopefully give a lot of clues about the dynamics within the Irish market at this time. The key things to watch out for in BKIR’s results are pre-provision profits (most analysts expect €500m), deposit trends, net interest margins, progress on deleveraging and impairment guidance.

 

(Disclaimer: I am a shareholder in Independent News & Media) I recently did up a case study on Independent News & Media, in which I mentioned the problem of imploding newspaper circulations. I was interested to read that INM has just de-registered 12 of its regional titles from the industry’s official circulation auditor, ABC. I’m sure that there’s no correlation between the two!

 

(Disclaimer: I am a shareholder in Datong plc) I was interested to read a piece in Growth Company about a stock I hadn’t come across before – PSG Solutions. PSG is clearly a microcap, with a market cap of only £26m, but I was interested to learn that it has a unit called Audiotel that specialises in technical surveillance countermeasures. I wonder if it would be a good fit with Datong, whose surveillance capabilities are well documented. Partnering the two could give it a nice breadth of offerings to security agencies. If anyone has a view on this, why not post a comment below.

Market Musings 26/1/2012

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It’s been a busy 48 hours on the corporate newsflow front since my last update. Let’s wrap up on what’s been going on.

 

(Disclaimer: I am a shareholder in Ryanair plc) To start off, Easyjet issued a strong trading update this morning, revealing a particularly good performance on the revenue side. This tees us up nicely for Ryanair’s results, which are due on Monday – NCB has a good preview of them here. Ryanair has had a decent move of late, rising from €3.42 at the start of November to the current price at the time of writing of €4.13. With continued positive updates from the sector and increasing chatter of one or possibly two €500m special dividends, I wouldn’t bet against this trend continuing.

 

(Disclaimer: I am a shareholder in both Allied Irish Banks plc and Irish Life & Permanent plc) I note press reports that AIB has told Irish Finance Minister Noonan that it has no interest in taking over IL&P’s permanent tsb banking unit. Given that Noonan effectively controls both companies through the State’s 99%+ stake in the two businesses, I’m not sure that the decision is AIB’s to make! As I recently noted, the State is mulling over its options for IL&P, so we should have a better idea of ptsb’s future within a couple of months. My guess is that ptsb is going to end up being subsumed into either AIB or IBRC (the former Anglo Irish Bank).

 

(Disclaimer: I am a shareholder in Datong plc) Regular readers will recall that a few weeks ago I did a detailed case study on Datong plc. Within it I noted that the outcome of a patent infringement case would have a material effect on the stock’s valuation. Happily for shareholders in it like myself the outcome was a positive one. Management is guiding that the total costs of it will come in “substantially” below the £0.3m it had provided for in its accounts. Hopefully the shares will now start climbing towards the most recently reported NAV of 70p at least.

 

There were some interesting movements in IFG’s share register, with Fiordland upping its stake in the company and One51 exiting the register.

 

This stat grabbed my attention – McDonalds served 1.3bn meals in the UK in 2011 – meaning that on average each Briton ate there 21 times last year.

 

(Disclaimer: I am a shareholder in Marston’s plc) In the blogosphere, Wexboy released part 2 of The Great Irish Share Valuation Project. I would broadly agree with his views on the most recent additions to his list, save for C&C, which I believe should be trading on a mid-teen PE in line with its international peers. This is something that I hope to look into in more detail later this year. Lewis at Expecting Value did a great write-up on Marston’s – that piece, and indeed the article on the same company I’ve previously highlighted by Richard Beddard, really underlines the quality of analysis that one encounters across much of the UK and Irish blogosphere. Elsewhere, Valuhunter did a stonking write-up on Marks & Spencer and Debenhams that’s worth checking out.

Written by Philip O'Sullivan

January 26, 2012 at 1:15 pm

Datong (DTE.L) – Inspecting Gadgets

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(This is the second installment in my series of case studies on the shares that make up my portfolio. For the last piece, on Trinity Mirror, click here)

 

I have had many unhappy experiences when it comes to technology investing. From memory, with the exception of First Derivatives, every technology company I’ve ever bought and subsequently sold shares in has lost me money. To be fair, many of my disasters happened in my early days of investing (I’ve been actively trading since the tail end of the 1990s), at a time when the dot.com bubble was bursting. Punts on the likes of Riverdeep and Alphyra went horribly wrong back then. Since that experience I’ve been very reluctant to buy tech stocks. All that’s left in my fund are Playtech, Datalex and Datong, which collectively make up 7% of my portfolio.

 

Datong caught my attention when I worked as a small-cap analyst. One of the stocks I covered was an outstanding Northern Ireland technology company called Andor Technology, which I’ve long been a fan of. A prohibition on owning shares in companies that I had research responsibility for prevented me from owning shares in Andor (and forced me to dispose of First Derivatives!). However, I liked the applications that Andor’s high tech camera gadgetry could be used for and looked for similar firms that were listed on the UK or Irish markets.

 

With the nature of warfare evolving into a high-tech game involving extremely mobile forces, I liked the sound of Datong, which is a supplier of covert surveillance systems to Western security services. With visions of its tracking devices being used to hunt down ‘Johnny Taleban’ in mind (although more recently I’ve noticed that its equipment is also used closer to home), I decided to take a punt on its shares.

 

However, my experience has not been a happy one. Government budgetary pressures saw its financial performance nosedive, taking the share price down with it. A further source of pain has been a messy legal action that it is fighting over alleged patent infringement (see note 9 here). The suspension of its dividend and recent departure of its CEO have been further blows to what had once been a rather promising story.

 

Earlier this week the company issued full-year results which contained plenty of material for both the glass half-full brigade and the glass half-empty one. In terms of the bull points, the company announced that: (i) it was trimming £0.5m from costs (pretty chunky for a company whose FY11 revenues were only £11.75m); (ii) its own-product sales had grown 26% in the past 12 months (third-party product sales sank 65%); (iii) reading between the lines, while State security budgets are under pressure, prevention is less costly than cure, so its ‘preventative’ product lines appear less likely to be trimmed from procurement budgets than other types of security products (although lead times are undoubtedly longer).

 

On the bear side, however, it was revealed that net cash had halved to £1.27m at the end of FY11 relative to year earlier levels due to what to me looks like very poor working capital management (operating cashflow in FY11 was -£149k versus +£2.8m a year earlier); while the firm also disclosed that in recent times order intake has been “comparatively low”.

 

Leaving the outlook to one side for a moment, with a market cap of £2.7m (and hence an enterprise value of less than £1.5m), the patent infringement case clearly poses a near-term risk to the equity value of the company (to what extent it may be priced in is impossible to tell given the poor liquidity of the stock and all of the other setbacks the company has experienced in the past year), thus putting it into the ‘highly speculative’ category.

 

In terms of the valuation, Datong has reasonable asset backing. It has no long-term debt and boasts net assets of just under £10m. That’s 70p a share, or 3.5x its current share price. Of course, the key near-term risk is the patent infringement case, although it should be pointed out that Datong says: “the Defendants continue to have confidence in their case and, as such, continue with their defence“. A court of appeal hearing took place in late November, but the judgment has yet to be handed down.

 

In all, Datong to me looks like an option here. An adverse finding against it in the patent infringement case would have negative consequences – the company has made provisions of £0.3m against this for fear that it happens, but it admits that “given the open issues surrounding the case and the inherent difficulties in estimating liabilities it cannot be guaranteed that additional costs will not be incurred beyond the amounts provided”. On the other hand, a positive result would remove a major overhang and likely see a big re-rating of the stock. Given that Datong makes up only about 50bps of my portfolio, this is a punt I’m willing to run as the potential downside from here is limited to only a tiny fraction of the fund. However, due to the uncertainty and also the low possibility of a pick-up in government security budgets in the short-to-medium term, I wouldn’t be looking to add to my position at this stage.

Written by Philip O'Sullivan

December 11, 2011 at 11:03 am

Posted in Sector Focus

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Market Musings 6/12/11

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The past couple of days have seen more hot air from Merkozy and a warning from S&P about the ratings it applies to all single currency users. This has been covered extensively elsewhere, so I’m focusing this blog on the budget and corporate newsflow.

 

We’ve seen a two-day budget presentation by the Irish government. Many of the responses that I’ve seen across various social media have been either hypocritical (Fianna Fáil activists hilariously complaining about the continuation of the policies implemented by their party when it was in government) or innumerate (people who should know better claiming that Ireland should carry on borrowing over €5,000 a year for every citizen – a policy whose logical conclusion is that more and more tax revenue will be diverted to paying interest costs, thus necessitating deeper cuts down the line). Thankfully the coalition government (which I did not vote for, incidentally) accepts that fiscal consolidation simply has to happen, although I would prefer if the balance of consolidation fell more on the spending side – I was particularly disappointed to see higher tax rates for CGT, DIRT & CAT, which makes no sense when Irish households urgently need to rebuild shattered balance sheets (Cormac Lucey has done some great work on this here).

 

(Disclaimer: I am a shareholder in Irish Continental Group plc) Switching to corporate newsflow, we’ve seen two big announcements from Greencore this week. Firstly, it announced that takeover  talks have ended, citing market turmoil and “the Board’s unanimous view on the strong underlying value of Greencore”. Secondly, this morning Greencore reported solid results, with 3.4% like-for-like revenue growth in its key convenience food segment achieved. Management say that the group has made a good start to FY12 despite tough market conditions. The conference call which followed the results revealed some good recent contract wins, such as for the supply of sandwiches to both Waitrose and Aldi. Overall, Greencore is cheap and has an attractive yield (circa 7%), but it also comes with £201.3m of net debt attached (roughly 3x FY EBITDA). Coming from the perspective of someone who likes high yielding stocks as a rule I would much prefer something like ICG, which also yields circa 7% but which has net debt of only €13m (less than a third of FY EBITDA).

 

(Disclaimer: I am a shareholder in Independent News & Media plc) Elsewhere, INM’s Australian associate APN cut its earnings guidance yesterday, which presumably means the risks to INM’s recently downgraded guidance lie to the downside. I was intrigued to read in the weekend press a report that financier Dermot Desmond has increased his stake in INM, which makes the most interesting shareholder register of any plc on the Irish Stock Exchange even more interesting!

 

(Disclaimer: I am a shareholder in PetroNeft plc) PetroNeft released “encouraging” early results from its fraccing programme in Western Siberia earlier today. While I would have preferred something a little more conclusive, it does allay some of my concerns about this stock.

 

(Disclaimer: I am a shareholder in Datong plc) Spy gadget maker Datong also issued results earlier today. To be honest I hadn’t been maintaining my model on it that diligently, so while it came in miles below my estimates I think this has more to do with my inertia towards what is a very small holding (just under 0.5% of the portfolio) more than anything else, although I note the shares were marked down (on low volumes) 19% today. I’ll update my model in the coming days to see if there are any interesting angles around the stock.

 

And finally – this article ties in with my own instincts at this time: “Funds bet on euro survival, 2012 risk rally“.

Written by Philip O'Sullivan

December 6, 2011 at 5:22 pm

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