Posts Tagged ‘FBD’
It has been a busy day on the results front in Ireland, particularly in the TMT sector.
To kick off, UTV Media, which has interests in the radio (local stations in the UK and Ireland, and the national talkSPORT station in the UK), television (the ‘Channel 3′ – ITV – franchise for Ulster) and new media (website design, marketing, broadband) segments, released its interim results this morning. This revealed a resilient performance in what are, clearly, challenging end-markets, with revenues and pre-tax profits climbing 4% and 3% respectively. The group continues to make impressive progress in terms of strengthening its financial position, cutting net debt by 21% over the past year to £50.0m. Across the group, UK radio revenues powered ahead, helped by the benefits of Euro 2012. Irish radio significantly outperformed, rising 4% in local currency terms, despite an estimated 10% fall in total Irish radio advertising in the first 6 months of 2012. The reason for this outperformance is that UTV’s Irish stations are all focused on the key urban markets on the Island of Ireland, which gives it a relatively more attractive proposition to offer to advertisers. On the television side, revenues and profits were down, with weak Irish advertising conditions to blame. With regard to the small new media business, margins were under pressure due to ‘competitive pricing’. In terms of the outlook, it looks like the rest of the year will see similar trends to the above, with outperformance on the radio side, underperformance in television and modest topline growth in new media. Not that investors should be too perturbed by this, as UTV is doing a decent enough job despite the challenging macro backdrop.
(Disclaimer: I am a shareholder in Datalex plc) I was pleased to see Datalex release very strong interim results today. Reflecting last year’s new contract wins (including Air China and SITA), revenues rose 18% to $15.7m. Reflecting the operating leverage inherent in Datalex’s model, nearly all of this translated into profits – I note that in the first 6 months of 2012 Datalex generated gross profits of $2.8m, 82% of the total for the whole of 2011! This positive momentum should be sustained into 2013, with the likes of Indonesia’s Garuda and Fiji’s Air Pacific having gone live since the start of the year, while a number of other carriers including Delta are scheduled to go live later this year. On the balance sheet front, Datalex is guiding a 20%+ rise in cash reserves in 2012. Overall, these are excellent results, and continued good news on the new client wins front bodes well for the future. I’m not surprised to see the shares shoot higher in Dublin today.
(Disclaimer: I am a shareholder in Independent News & Media plc) INM completed the restructuring of its board, with the election of four new directors and the appointment of a new Chairman and Senior Independent Director. With this out of the way, hopefully the focus can move on to the more crucial issue of repairing the firm’s balance sheet, and on this front the Irish advertising trends noted by UTV must surely bode ill for INM.
Insurer FBD posted solid H1 results today. The numbers were in-line with expectations, while management is sticking to its FY guidance. Within the results it was interesting to see that FBD has reduced its exposure to government bonds by over 40% in the year to date – this is a sensible move given what I believe to be a bubble in government bonds in Europe – although its exposure to equities remains low, at just 4% of total underwriting investment assets.
United Drug announced another two acquisitions – Drug Safety Alliance (total consideration, including earn-outs, of $28m) and Synopia (total consideration, including earn-outs, of $12m). Both businesses will form part of United Drug’s Sales, Marketing & Medical division. These deals take the number of acquisitions the firm has made so far in 2012 to six (five operating businesses and one property acquisition), so bedding these down will presumably take up a lot of management’s time over the next while.
In the resource sector Petroceltic’s H1 release contained no material ‘new news’. Management is focused on successfully executing the merger with Melrose Resources.
And that’s pretty much all that’s caught my attention so far today. Tomorrow brings results from PTSB, Grafton, Paddy Power and Glanbia, which will no doubt provide much food for thought.
Since my last update the latest corporate developments have been mostly about Irish companies looking to either move in or move out of other countries. Let’s examine what’s been going on.
(Disclaimer: I am a shareholder in Independent News & Media plc) INM confirmed that it has received “informal and unsolicited expressions of interest” for its South African business. With the group’s main lender having reportedly categorised INM as one of its “most challenged corporate relationships“, divestments to strengthen its balance sheet appear to be a must. At the end of 2011 INM had net debt of €427m. If INM were to offload South Africa and its APN stake for €350m (based on media reports on South Africa could fetch and the current market value of APN), this would cut net debt to circa €75m. Add in the €125m current market cap INM is on and it would have an enterprise value of €200m against which the firm would have All-Ireland assets which produced sales and operating profits of €363m and €46m respectively in 2011, which was clearly a tough year for the media sector here. While you would have to adjust the above profits for INM’s group overhead costs, it seems to me that the market is applying a very low multiple to its Island of Ireland division. Divesting its overseas units should draw attention to this and potentially lead to a dramatic re-rating for INM.
DCC issued a solid trading update on Friday, which revealed that its Q1 performance was “ahead of budget”. However, management is sticking to its previous full-year earnings guidance, which is reasonable given how heavily skewed its profits are towards the second half of its financial year. To me there was little in the release to change the narrative around the company – DCC’s proposition to investors is a strong balance sheet and a good mix of assets, yielding consistently high returns, trading on an undemanding multiple.
(Disclaimer: I am a shareholder in CRH plc) Press reports suggest that CRH may be considering a €1bn+ deal in India. The cement assets in question have a combined capacity of 9.8m tonnes and they would more than treble CRH’s presence in the market if acquired. We’ll have to wait and see if there’s more to this story.
(Disclaimer: I am a shareholder in Marston’s plc) TMF’s Tony Luckett wrote an interesting piece on the UK pub sector – only the strong will survive. In it he cites research from CAMRA, suggesting that the pace of pub closures in the UK may be leveling off. This is an encouraging claim, and it’s something that I’ll keep an eye on to see if the trend continues to improve.
(Disclaimer: I am a shareholder in AIB, PTSB and RBS) The Irish banking sector was in focus in recent days. PTSB gave a non-update on its restructuring plans, which contained nothing that wasn’t already in the public domain. My view on PTSB remains that, unless it can heroically engineer a large-scale recapitalisation to pave the way for a step-up in its lending capacity, it is very likely to remain a marginal player in the Irish banking market. I struggle to see why it wasn’t shunted into AIB. Today’s press asks if RBS’ Ulster Bank is gearing up to leave Ireland – I would think this extremely unlikely given the difficulties that would be involved, particularly in terms of time and costs – the problems of moral hazard, deposit flight, extricating the bank out of lengthy contracts, redundancies and so on would make this a very messy process (think of the hassle Lloyds has had with BOSI). I suspect that while Ireland is going to be down the pecking order in terms of capital allocation from RBS’ head office over the coming years, the much lower competition relative to before in the banking sector here means that margins on new lending should be quite attractive whenever the domestic economy and the financial system are restored to vigour. As the third biggest bank in Ireland, RBS should find itself well placed to exploit this future opportunity.
In the insurance sector FBD Holdings appointed UK firm Shore Capital as its new joint broker following the sad demise of Bloxham. This is a curious move given that FBD’s core operations are all in Ireland – might FBD be considering a push into Britain?
And finally – I was interested to read that 48 tonnes of silver bullion were recovered from a shipwreck off the west coast of Ireland.
As has been the norm of late, while we’ve seen a lot of newsflow around the market, a lot of it is focused on peers of Ireland’s leading plcs. Let’s review what’s been happening on a sector-by-sector basis.
(Disclaimer: I am a shareholder in Allied Irish Banks plc, Bank of Ireland plc and Irish Life & Permanent plc) There has been a lot of news around the Irish financials in recent days. To start off with IL&P, I was interested to read that it has suspended the sale of its UK loanbook along with its subprime business. I find this move more than a little strange given the seemingly buoyant demand for BTL loanbooks in the UK (which is the vast majority of IL&P’s presence in that market) and the fact that IL&P hasn’t written any new business in the UK market since early 2008. The government should be accelerating disposals of non-core assets, not suspending them. Elsewhere, I recently wrote about AIB’s unjustified market valuation. The NPRF has now hired Goodbody Stockbrokers to look into it. Further on in this blog piece I’ve noted some of the consequences of the removal of EU milk quotas in 2015. One potential beneficiary of this, as Bloxham notes, is insurer FBD. Bank of Ireland reports its full-year results on February 20th. Davy have a preview of it here. What I’m looking for in the results are updates on deposits (have recent positive trends been sustained?), de-leveraging (has BKIR continued offloading loans at better-than-expected levels?), margins and the level of provisioning (this will be particularly interesting given recent results from the likes of KBC and Danske Bank).
(Disclaimer: I am a shareholder in Marston’s plc and Tesco plc) In the consumer sector, I read an interesting piece on Marston’s strategy in The Daily Express (yes, really!). It’s a strategy that is reaping rewards, given the group’s rising profitability at a time when UK consumer discretionary spending is under pressure. Speaking of the UK consumer, I bought a position in Tesco earlier this week. While time will tell if my purchase was a little premature, I find being able to pay a single-digit PE multiple and a circa 5% dividend yield for a hugely successful global franchise particularly compelling.
(Disclaimer: I am a shareholder in Glanbia plc) In the food sector, I was interested to read that Dairygold Co-op is contemplating a €130m investment in growing its milk processing capacity. This follows reports that Glanbia is looking into making a similar investment to exploit the structural growth opportunity arising from the removal of EU milk quotas in 2015. I attended a briefing by a Bord Bia executive recently who outlined that China will be a major buyer of Ireland’s expanded milk production so I’m not surprised by Dairygold CEO Jim Woulfe’s comments in the piece linked above. Speaking of emerging markets, Danone’s 2011 results revealed strong growth by its infant nutrition business in particular, which is no surprise given last year’s buoyant performance by Ireland’s Glanbia and Kerry Group (both of which have a significant presence in that area).
(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) I was pleased to see S&P upgrade its credit rating on Smurfit Kappa Group to BB from BB- along with applying a stable outlook to it. While it’s not a major surprise given the progress the group has made in cutting its debt, I am pleased to see that the recent resumption of dividend payments by the group hasn’t dissuaded S&P from this move.
Finally, in the blogosphere, John McElligott ran a screen over the Japanese market that identified a few interesting names. Calum has been looking to the United States for inspiration, doing up great articles on Dreamworks Animation and Family Dollar Stores. John did a feature on Flybe which is worth checking out – my view on it is that if the investment case he sketches for Flybe is one you can buy into, then you should be looking at Aer Lingus, which ticks much the same boxes save for having an even stronger balance sheet and superior operating trends.
Since my last update it’s been all about the Eurozone crisis and a tidal wave of company newsflow. The latter reads a lot better than the former, which continues my narrative about how corporations appear a safer store of value than sovereigns at this time.
(Disclaimer: I am a shareholder in Datalex plc). Kicking off with corporate newsflow, Datalex issued a solid (if frustratingly qualitative) trading update yesterday, in which management revealed that it has doubled its customer base in the past 18 months. The company says that it is on track to deliver growth in both EBITDA and cash this year, but it held back from providing anything more specific than that. In all, a positive enough update, but more detail would have been appreciated.
Elsewhere, UTV Media’s trading update, also released yesterday, showed that TV and Irish radio weakness is being cancelled out by UK radio strength. I like what UTV has been doing of late, but what turns me off the story is the way the value of its core radio and TV franchises are being eroded away by structural changes in technology and media consumption.
(Disclaimer: I am a shareholder in Independent News & Media plc) Staying in the media space, Independent News & Media issued a trading statement earlier today in which management downgraded the group’s FY EBIT guidance from a range of €78-83m to €74-78m, but at the same time it said that the net debt reduction goal is “on target”. Given how, as I’ve noted before, the INM investment case hinges on deleveraging, I’m relaxed about the profit warning (in any event, given deteriorating macro indicators is it really a surprise?) so long as they can continue to squeeze enough cash out of the business to continue to meet their debt reduction goals.
Turning to insurer FBD, going into today’s trading statement I cautioned that the recent floods could dent the group’s near-term fortunes. In the event, management issued a very strong trading update, upgrading its full-year earnings guidance by 10%, helped by an improving loss ratio. So, a very big slice of humble pie for me where this company is concerned!
The other small listed Irish financial company, IFG, issued a solid statement today. While they don’t spell out what their full-year targets are, management say ”the group is on track for the year as a whole” and “net debt is now negligible”.
(Disclaimer: I am a shareholder in Total Produce plc). Fyffes announced yet another share buyback this afternoon. The company now holds 33m shares in Treasury, which equates to over 10% of the shares it has in issue. I note increasing chatter about the possibility of a re-merger of Fyffes with Total Produce, which is something that I would not welcome given the inherent riskiness of the Fyffes model versus the low-risk strategy Total Produce adopts. It seems that half the blogosphere (possibly a slight exaggeration!) is to be found on the Total Produce share register, with the likes of John McElligott, Wexboy, Valueandopportunity and myself all holding it. Perhaps we should set up our own value-oriented investment fund!
Switching to macro news, data released by the Irish Banking Federation show new mortgage lending has halved in the year to the end of September. Even more significantly (but hardly surprising) is the revelation that the volume of investor mortgages, which represented c.14% of total Irish mortgages in 2005/2006, is -99% from peak levels.
The Eurozone crisis is rumbling on, and to me debt monetisation now looks unavoidable. I gave a presentation to the Smurfit MBA Student Investment Fund earlier today which touched on that issue, and I note this evening that Pimco’s Bill Gross has opined:
“[The] ECB must write checks; trillion dollar ones. Otherwise financial delevering will accelerate & threaten systemic stability”.
Staying with the Eurozone, this is an interesting blog post – Looking at the eurozone through a NIIP prism.
It’s been an interesting couple of days since my last blog, with Irish listed stocks in particular giving me a lot to mull over.
Yesterday Dragon Oil announced that it has farmed-in to an offshore prospect in Tunisia. This marks the group’s latest attempts to diversify from its current single producing asset (in Turkmenistan) model. A previous overseas foray, into Yemen, has to date proved disappointing. I like Dragon, due to its strong balance sheet (net cash was an incredible $1.5bn at the end of H1 2011), simple business model centred on growing output from the Cheleken field, from which it has been producing for many years and inexpensive valuation (EV/BOE of circa $2.8). Elsewhere within the energy space, Petroceltic had two positive announcements out yesterday – confirming that it has inked a deal on a new facility with Macquarie and also announcing successful results from its fraccing activities in Algeria. The shares marked up sharply on the back of this newsflow.
Aryzta peer CSM issued a profit warning, citing difficult economic conditions. Aryzta was one of the weakest performers on the ISEQ yesterday, presumably on the back of this announcement, but it should be noted that the Irish-Swiss concern recently issued a solid enough set of results.
Staying within the Irish food space, I note that Fyffes has returned to the markets to buy more of its own shares – in this case acquiring roughly 6% of its outstanding shares on Friday.
(Disclaimer: I am a shareholder in Bank of Ireland plc) In terms of what other bloggers are writing about, my old friend John McElligott has written a great blog post on both Bank of Ireland and FBD. I would agree with his views on both. For me BKIR is a complete punt here, while FBD offers remarkably good value at these levels for investors with a longer-term investment horizon.
Speaking of share recommendations, I was interested to see that my former employers Goodbody have initiated coverage on Easyjet with an “Add” recommendation. They have pitched their estimates well below consensus (5% below in FY12, 18% below in FY13) on macro concerns, which looks reasonable to me given recent updates from the likes of Flybe (the UK accounts for c. 40% of EZJ’s capacity).
A reminder that not all parts of the economy are struggling – Apple announced that pre-orders for its new iPhone 4S topped one million in a single day.
Last, but not least, Reuters has produced this very useful computer model which allows people to “stress-test” European banks under a range of different sovereign debt haircut scenarios.
In my last blog I wrote about how this was going to be a busy week for corporate newsflow, so it’s no surprise that I focus mainly on this today, however, I also have some interesting (to me anyway!) nuggets on State transport policy, QE3 and gold to share with you.
(Disclaimer: I’m a shareholder in Glanbia plc) I was delighted to see Glanbia report “excellent” results earlier today. So was the market, with the shares up over 5% at one stage. The company has raised its full-year guidance to 18-20% growth (constant FX) in adjusted EPS from the previous 11-13%. Regular readers will know that it’s one I have been positive on for a while. The conference call threw up some interesting pieces of information. Six of the top ten sports nutrition supplements listed on the leading US website are made by the group, while in the premix ingredients space Glanbia is no. 3 globally after DSM and US private company Fortitech. Both of those achievements are a vindication of the strategy the group has embarked upon for some years now to diversify away from its commodity business roots. In terms of M&A activity, Glanbia says that it is looking to buy ingredients companies in Asia and customer facing nutritional companies in the US and Europe. All of which sounds good to me!
We also got results from FBD this morning which reveal a solid operating performance and news of a JV with Farmers Business Developments for its hotels and leisure business. This JV is a positive development, which will take investor attention away from the non-operating business and allow it to focus more on its excellent insurance unit.
The third Irish company to report today was Tullow Oil. The market reaction was positive, but I do note the downward revisions to production (90 – 94 kbopd to 82 – 84 kbopd). Obviously the main value in Tullow is in its exploration and future production upside, but I would prefer to see production picking up to help with the funding of its ambitious plans to develop its new resources.
(Disclaimer: I’m a shareholder in Uniq plc) Greencore announced a 91% take-up by shareholders of its rights issue to fund the takeover of Uniq. This is a positive development for the company, and the high take-up was particularly welcome given the recent market turmoil. The challenge now for Greencore’s management team is to integrate the businesses, take costs out and do all it can to prevent the multiples from squeezing margins lower. All of which is easier said than done! This is a stock I have traded successfully in the past and one that remains on the watchlist. I’ll wait and see how the integration and cost take-out goes over the next while.
(Disclaimer: I’m a shareholder in Ryanair plc). Ryanair announced the ending of its flights from Dublin to both Kerry and Cork yesterday, which the Irish Examiner’s Niamh Hennessy has a good overview of here. This prompted a lot of debate on various social media websites, and I offer these perspectives to people wondering about the decision:
- Ryanair has been redeploying aircraft across its network to more profitable routes for years. While there was talk that Cork-Dublin was a “very profitable” route for the carrier, I don’t buy that given the competitive prices (relative to rail etc.) Ryanair charged. Also, on the cost side, Ireland’s main airports are among the most expensive in Europe in terms of landing charges.
- Landing charges, a small population and/or a weak domestic economy mean that most of Ireland’s airports hold little attraction for carriers outside of the two domestic airlines, Aer Lingus and Ryanair (I count Aer Arann within AERL, given the importance to it of its relationship with its bigger peer). You can see what I mean by looking at how few carriers outside of AERL and RYA operate year-round scheduled services at Cork, Kerry, Shannon and Ireland West-Knock, which are the main airports outside of Dublin.
- Investment in road and rail infrastructure during the Tiger years meant that the Cork-Dublin route did not save a whole lot of time relative to other modes of transport, which limited pricing power on the route.
- Some people felt that Kerry Airport should have been an attractive market for Ryanair. This doesn’t stand up to scrutiny, considering that (i) The airport only attracted 424k passengers in the 14 months to the end of 2010; and (ii) If flights from Kerry to Ireland’s major population centre require a taxpayer funded PSO subsidy, there just isn’t the demand for the route.
- If Ireland didn’t have so many airports, economies of scale could allow for reduced landing charges at the ones kept open, which would stimulate more interest from carriers. It makes no sense that 4 of the 6 counties in Munster (population 1.2m) have airports. Similarly, it makes no sense that every single county on the west coast of Ireland (save for Leitrim, which only has a 2.5km long coastline) has an airport. Basic economics suggests that airports in the south and west of Ireland will be consolidating over the medium term.
- Before I am accused of being a Jackeen with no understanding of the needs of rural Ireland, I should mention that I’m a Cork-born Munster Rugby fanatic.
Fisher Investments provide some useful insights into QE3 here which it posted ahead of the start of the Fed’s Jackson Hole meeting.
Finally, a lesson for Ireland. One of our biggest listed companies, Smurfit Kappa Group, has seen Moody’s upgrade its outlook on its debt to “positive” since my last blog. Progress in terms of addressing its debt position was the main driver behind this improved stance, and there’s a lesson there for Irish policymakers, not least given that the State is rated as “junk”. We could solve a lot our financing woes at a stroke by living within our means, rather than continuing to bequeath an obscene national debt mountain onto future generations.
A busy few days since my last update, with the highs of the Royal Wedding and the lows of deteriorating economic indicators providing much to chew over.
The Royal Wedding provided a few interesting economic pointers – Burger King ordered 250,000 additional paper “crowns” to cater for Royal Wedding related demand, while it also affected the demand for electricity in Ireland.
I was delighted to learn of Professor Sean Barrett’s election to the Seanad (Senate) in Ireland. He has been a strong advocate for free market policies (and by extension an opponent of the bail-outs that have cost the State much of its sovereignty) for many years, as these endorsements show.
From a corporate perspective, insurer FBD maintained its full-year guidance – barring exceptional weather related claims events – at its AGM in Dublin. I’m a long-term admirer of the company and its management team, which is led by Andrew Langford (CEO) and Cathal O’Caoimh (FD).
Staying within the financial space, the Irish central bank released money and banking statistics that revealed some stark results. In the past 12 months, deposits in Irish banks from non-residents, largely caused by credit ratings downgrades, have fallen by 51%. Irish deposits are also dropping. Non-financial corporate deposits were -10.7% yoy in March, while household deposits overall were -5.4% yoy. Elsewhere, Irish banks’ deleveraging continues at a slow pace. In March household credit was -5% yoy (consumer loans -15%/mortgages -2.6%), while NFC loans were -1.4%. The glacial pace that loan books are shrinking at is concerning.
In a disgracefully cynical move, the Irish government downgraded its growth forecasts on Friday evening, just as the Bank Holiday weekend was kicking off and most Irish people were distracted by the events in London. The government now sees growth of just 0.75% this year, from 1.75% previously, while for 2012 the growth target of 2.5% has been pared from the previous 3.25%. The government now sees 2011 deficit at 10% of GDP, from 9.4% previously, with the 2012 deficit seen at 8.6% versus the previous 7.3%. These larger deficit projections surely now put the final nail in the Croke Park Deal’s coffin.
(Disclaimer: I am a shareholder in Ryanair plc). Finally, The Mail on Sunday is today reporting that Ryanair may bid for Aer Lingus again. I’m not sure about this one – hard to see a deal ever securing regulatory approval given that RYA and AERL operate an effective duopoly on the London-Dublin route, while AERL’s long-haul business and cost structures don’t fit with RYA’s model.