Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Home Retail Group

Market Musings 4/3/2012

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Big share deals and Ireland Inc have provided the most interest since my last market update. Let’s see what the lessons from these are.

 

(Disclaimer: I am a shareholder in Ryanair plc) To kick off with the transport sector, Ryanair announced that it bought back 9.5m of its own shares at a cost of €39m. This is particularly interesting in light of comments made on the carrier’s conference call post its Q3 results that it could spend up to €200m on share buybacks. This should help to prop up the share price against the pressure of the recent spike in oil prices. I hope to do a detailed piece on Ryanair over the coming days.

 

(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) To switch from the purchase of a big block of shares to a sale of one, private equity houses Cinven and CVC announced that they sold a 9.7% stake in Smurfit Kappa Group for €158m. The two retain an 8.2% position which is subject to a lock-in agreement until the release of SKG’s Q1 results in May – which I can’t help but wonder if this will be seen as a near-term overhang on the stock – time will tell.

 

(Disclaimer: I am a shareholder in Irish Continental Group plc) These big share transactions bring to mind a lot of the other stakes in Irish plcs that could change hands this year. The Irish government has signaled a willingness to sell its 25.1% stake in Aer Lingus. One51 has said that it will sell non-core assets, which I assume includes its circa 12% stake in Irish Continental Group. How long will baked goods company Aryzta hold on to its 71.4% shareholding in agri group Origin Enterprises plc for? Given the recent boardroom dispute at UTV Media, what are the intentions of its 18% shareholder and fellow Irish plc TVC Holdings? We could be in for an interesting few months ahead.

 

Switching to Ireland Inc, the IMF struck a relatively positive note about the country’s prospects. However, the fiscal crisis continues to drag on. Exchequer Returns data for the first two months of the year revealed that the year to date deficit stands at €2.07bn versus €1.95bn in the same period in 2011. The tax take increased from €4.9bn to €6.3bn, but voted expenditure (the part of spending that the government has full discretion over) rose by €474m – this is a disappointing performance. Non-voted expenditure ballooned from €580m to €1.6bn, let by a massive increase in interest costs on the national debt (€848m vs only €61m) and a €250m loan to the insurance compensation fund. The interest costs serve as a reminder of the consequence of this government’s (and its predecessor’s) failure to close the fiscal jaws been revenue and spending. It is astonishing, given the unemployment and emigration crises Ireland is facing, that the government spent 10x on national debt interest costs (€848m) in the first 2 months of 2012 than it did on the Department of Jobs, Enterprise & Innovation (€84.5m).

 

Finally, in the blogosphere Neonomic did up a good piece on Home Retail Group, which owns Argos and Homebase, that’s worth a read.

Written by Philip O'Sullivan

March 4, 2012 at 10:23 am

Market Musings 9/9/11

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Since my last update, we’ve seen the good (Tullow), the bad (ECB, Euroland, Obama’s jobs proposals) and the ugly (HMV).

 

On Tullow, one of my more thoughtful readers contacted me yesterday to ask about rumours of bid interest from CNOOC (China National Offshore Oil Corporation). This story continually does the rounds, and given both China’s thirst for oil reserves and Tullow’s spectacular oil finds in Ghana and Uganda (in particular) you can see why. However, while a “Chinese takeaway” is a credible endgame for Tullow, the story itself has appeared with so much frequency that one is reminded of the fable of the boy who cried wolf. So, I wouldn’t be punting on Tullow on the basis of the latest manifestation of this rumour. However, why I would consider punting on Tullow is its exploration activity. On this front, we received a reminder of Tullow’s proven skill in finding oil in new markets with news of a 72m net oil pay find in offshore French Guiana today. This is a shedload of oil. Goodbody’s Gerry Hennigan, who is one of the top oil analysts I’ve ever come across, puts today’s discovery into context:

 

“In comparison to [the] previous discovery in Ghana, 72m of net oil pay is considerable, Mahogany-1 and Mahogany-2 encountered 95m and 50m respectively”

 

And if that’s double-Dutch to you, this piece explains why Tullow’s Ghana find was huge.

 

In Euroland, we have seen both Greece being warned about its fiscal delinquency and the latest ECB meeting. On the latter, the euro has come under pressure as the European Central Bank has halted moves to hike rates, and indeed rate cuts in 2012 are increasingly being seen as a given.

 

Here’s Danske Bank on why the UK should be rated A+, not AAA.

 

Turning to the US, markets have given a lukewarm reaction to President Obama’s jobs plan. The best way America can grow employment is by giving companies the confidence to invest the trillions of dollars in cash they have sitting on corporate balance sheets, rather than having the Federal Government continue to spend money that it doesn’t have. The uncertainty caused by the unsustainable fiscal and monetary paths the Obama administration and Chairman Bernanke have respectively embarked upon does little to promote confidence.

 

Do you know who the 10 countries with the biggest gold reserves are?

 

(Disclaimer: I am a shareholder in Irish Continental Group plc) In terms of other corporate newsflow, Goodbody had a bullish note out on Greencore following its Uniq deal yesterday. They rate it as a “buy” with an 80c price target (c.33% upside). The broker is particularly positive on the food producer’s cashflow and 7.8% dividend yield. By my calculations, Greencore and Irish Continental Group (7.0% yield based on yesterday’s close) are the two highest yielding stocks listed on Dublin’s ISEQ Index. Something for income investors to think about.

 

Following yesterday’s grim updates from Dixons and Home Retail Group (which owns Argos and Homebase), the UK High Street Horror Show continued today with yet another set of eye-watering like-for-like sales numbers from HMV. The UK retail sector is not on my list of things I’d like to invest in at the moment!

 

Another one of my thoughtful readers brought this new film to my attention. Looks good!

Written by Philip O'Sullivan

September 9, 2011 at 1:23 pm

Market Musings 8/9/11

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I was pleased to see a snap-back in equity markets yesterday, with strong performances on both sides of the Atlantic. I haven’t been too surprised by the recent market gyrations – regular readers of this blog know that I’ve been cautioning about extreme volatility in share prices for some time. Hence all of my trades this year have been ‘for cash’, with none on margin.

 

So what has been grabbing my attention of late? The main items of note are an interesting follow up on Switzerland’s interventions in the FX market, speculation around the Obama jobs announcement, Aer Lingus’ traffic stats and share register, the UK retail sector and assorted macro indicators.

 

ZeroHedge had an interesting chart following the SNB intervention – “Here is how Switzerland caught up to the rest of the world in devaluing paper currencies against gold“.

 

President Obama will announce his jobs package later today. Reports suggest that it will cost in the region of $300bn, which works out at over $20,000 for every unemployed American. This is, of course, like many of his administration’s other economic policies, completely unsustainable. I was amused to see a number of Irish commentators praise this sort of Keynesian intervention. Ireland had some similar ‘stimulus programmes’ in the late 1970s that nearly bankrupted the country, so clearly having a poor memory is no obstacle to building a profile in this part of the world.

 

In terms of what the US should be doing, I can not better the always-excellent Jill Kerby, who writes:

 

“America’s jobs crisis will solve itself when debts are cleared, budgets balanced & competitiveness restored. A long haul…”

 

(Disclaimer: I am a shareholder in Ryanair plc) Elsewhere, Aer Lingus reported its latest traffic statistics yesterday. While I am a huge admirer of the carrier’s CEO Christoph Mueller, I was a little disappointed by Aer Lingus’ year-to-date performance. On this measure, passengers carried are down 1.4% relative to year-earlier levels, while load factors have declined by 2.4ppt. This is despite the absence of last year’s volcano-related disruption and a huge increase in traffic at its Aer Lingus Regional partnership, which acts as a feeder into AERL’s other services. Transport Minister Leo Varadkar indicated that the government could sell its stake in the airline yesterday. Here’s the response of its biggest shareholder, Ryanair. Here’s Davy on it.

 

It appears that rioters are the only ones frequenting Britain’s High Street these daysDixons reported a 10% drop in like-for-like sales in the 12 weeks ending July 23. And for more retail woe – Both Argos and Homebase recorded big drops in like-for-like sales in the 13 weeks ending August 27.

 

The IMF cut its Irish growth forecasts yesterday due to a deterioration in the economies of our major trading partners. This mirrors something I wrote earlier this week.

 

Speaking of matters macro related, Greece’s 1-year bond yield hit 97% yesterday.

Written by Philip O'Sullivan

September 8, 2011 at 7:25 am

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