Market Musings 24/1/2012

Since my last blog it’s been mostly all about trading updates and some good blogs from my UK and Irish peers. Let’s take a look at what has been going on.

 

Dragon Oil issued a solid trading update. Management had already guided the market on production levels, but there was a positive surprise in the shape of an upward revision to reserves. As Goodbody’s Gerry Hennigan points out, Dragon recorded gross reserves of 658 mmboe at the end of 2005, the same figure outlined for 2011, despite production over the past six years. His total risked NAV on the stock is £8.17, which compares favourably with yesterday’s £5.13 closing price. Given that Dragon is effectively a play on the oil price, this could be one to trade should tensions with Iran worsen.

 

Speaking of the oil sector, you might recall that some months ago I criticised Chancellor of the Exchequer George Osborne for raising taxes on North Sea oil producers. Well, last year only 14 exploration wells were drilled offshore UK, the lowest rate of activity since 1965. Cause, meet effect.

 

(Disclaimer: I am a shareholder in PetroNeft plc) Elsewhere, I note that there has been an oil IPO in London today - RusPetro - its operations are in the same geographical area as PetroNeft’s, so it’s one I’ll be keeping an eye on.

 

(Disclaimer: I am a shareholder in Glanbia plc) Switching to food stocks, PZ Cussons issued a trading statement earlier today in which it reported “strong revenue growth” in its Nigerian nutrition business – which is a 50:50 joint venture with Glanbia. This is a further positive sign for Glanbia, although I think its share price is high enough at current levels, for reasons I recently outlined.

 

(Disclaimer: I am a shareholder in Playtech Ltd) It was a busy day for Playtech, which announced Q4 KPIs, 2 new joint ventures and an acquisition. I take encouragement from the solid trading stats and decent enough start to 2012 for the group. On the joint ventures, these bolster its position in Germany and South Africa, two large markets that are reportedly going down the route of further liberalisation. While my concerns around corporate governance issues have not gone away, I’m happy to let this one run a little longer in the hope that it can get back to my break-even point in the near future. To me Playtech is like a paratroop on a C-130 plane – it’s waiting for the green light before jumping out of my portfolio!

 

In the blogosphere, Mark Carter wrote a great blog on Premier Foods that’s worth checking out here. Lewis at Expecting Value does a good write-up of his experiences as a shareholder in RSM Tenon, which reminds me of some of the horror stories in my own portfolio over the years!

 

Finally, I did some digging on the National Newspapers of Ireland website yesterday and was interested to read through how circulation figures have evolved for the national titles here over the past few years. Comparing the most recent data to five years ago reveals that over that period circulations have performed as follows: Irish Times -14%, Irish Independent -17%, Irish Examiner -24%, Irish Star -23%, Irish Mirror -16%, Irish Sun -27%. You can download the data set from my blog by clicking this link.

Market Musings 25/5/11

I didn’t expect to have any time to blog on my travels through North and South America but with an hour to spare I thought I should scribble down a few observations.  From a broad markets perspective, I wasn’t surprised to see that most of the leading share indices have declined in line with the prediction given in my last update, but I have to admit that I would have thought that the declines would have been more pronounced than they have been. We’ve seen a good bit of volatility in currency markets too. The “flight to safety” theme is well and truly in the ascendancy here with the Swiss franc rising to an all-time high against the euro. Concerns about peripheral Europe remain to the fore, but the EU elite appear hell-bent on pursuing measures that will worsen and prolong the crisis instead of doing the sensible thing and imposing haircuts on the unsustainable debts that Ireland, Portugal and Greece have.

One of the worst offenders when it comes to advocating policies to address the peripheral countries’ problems that make absolutely no sense is the French government. My heart sank when I saw that Christine Lagarde is the leading candidate to take over the IMF. Christine believes that Ireland should be raising taxes on business (translation: jobs) at a time of deep recession, which of course will serve only to heap further pain onto the Irish economy. It was staggering to see several Irish politicians enthusiastically support her candidacy, given her views about our economy. Something to remember for the next time a canvasser calls to your door.

Speaking of bad policy decisions, I note Tullow Oil’s subtle dig at the UK government in its announcement accompanying its acquisition of Nuon in the Dutch part of the North Sea. At a time where concerns about energy security are elevated it makes no sense that George Osborne raised taxes on E&P operators in his last budget.

The US debt ceiling talks continue to drag on. The reality that both the Democrats and the Republicans need to face up to is that America’s debt and deficit positions are completely unsustainable. The fiscal jaws need to close sooner rather than later, and I was pleased to see that Grover Norquist, who I’d the pleasure of meeting at a free-market conference in Brussels some years ago, is applying pressure on politicians to do the right thing and cut spending, instead of raising taxes.

Turning to the banks, I see that Moody’s has placed 14 UK banks, including Bank of Ireland’s UK subsidiary, on notice for a possible downgrade. Not a big surprise, but I do think that the UK government is trying to wean them off its support a little too early. I note an interesting suggestion by economist Ronan Lyons for a maximum LTV to be applied to future mortgages by the regulators in Ireland. That’s a sensible suggestion which I endorse, but I would go a step further and say that total borrowings should be taken into account as well – we all know imprudent folk who have built up a “portfolio of debt” that encompasses personal loans, car loans, credit card debt and mortgages. While my more libertarian-minded friends would say that individuals should be allowed do with their finances as they wish, the problem with that logic, as we’ve seen in Ireland, is that the taxpayer usually has to pick up the tab for financial messes created by other people.

Did you know that shale gas formations have the potential to double the world’s gas reserves? Staying on energy, here are some interesting perspectives on US gasoline consumption, via the good people at Morgan Stanley:

1. Americans spend $500bn on gasoline a year (50% of total US oil demand).
2. US households spend twice as much on gasoline and motor oil as they do on education.
3. At $5/gallon (it’s at $3.85 now), assuming constant demand, US households would spend as much on gas & motor oil as they do on healthcare.

Finally,  a commodity price update – Starbucks is raising the price of bagged coffee sold at its US stores by 17%. I like coffee as long-term investment given that the commodity has robust structural drivers – the demand boost that the more than 1bn “emerging middle class” people in Asia will give this over the coming years is going to be staggering to watch.