Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Morgan Stanley

Market Musings 7/11/11

with 2 comments

The past couple of days have been rather busy due to college and work commitments, which from this blog’s perspective is a pity in that I wasn’t able to provide the sort of timely analysis that I normally try to do. We’ve seen a lot of troubling economic developments around the world, but against that we’re also seeing some positive signs from corporates and from the Sage of Omaha. Let’s drill down into what’s been happening.

 

(Disclaimer: I am a shareholder in Ryanair plc) Ryanair reported a very good set of numbers earlier today. Encouragingly, the group raised its full-year net income forecast by 10% to €440m. The market gave all of this the thumbs up, with the shares finishing up 5.1% in Dublin this evening. You can see an interview with Ryanair CEO Michael O’Leary here. Overall, it is a testament to the resilience of Ryanair’s business model that it is able to churn out a performance like this in such an extraordinarily challenging market. Elsewhere in the airline sector, Aer Lingus released decent traffic stats this morning, with good capacity management seeing load factors rise 2.1ppt in October.

 

Greencore’s share price jumped nearly 10% just before the close on Friday, leading me to wonder aloud if the weekend papers were going to contain any major news on the stock. In the event, the Sunday Times said that the fund behind the recent approach for the company looks to be US private equity firm Clayton Dubilier & Rice, which counts former Tesco supremo Sir Terry Leahy among its team. One to keep an eye on.

 

(Disclaimer: I am a shareholder in Total Produce) Staying with the food space, John McElligott posted a great blog earlier today on the UK retailers and also Irish headquartered fruit and vegetable distributor Total Produce. I’m a big fan of TOT for some of the reasons John touches on – a very defensive business model, high cash generation, a strong balance sheet and enormous scope for the group to expand through acquisition in the extremely fragmented European produce distribution space (where TOT is the biggest player despite having only 5% market share!).

 

An interesting development – Warren Buffett invested $23.9 billion in the third quarter, the most in at least 15 years.

 

To return to a regular theme on this blog – if you want to know how grim things are getting in China, read this.

 

Europe’s woes continue to rumble on. Earlier today Morgan Stanley downgraded European equities to underweight, citing deteriorating growth, falling corporate margins, poor policy responses and leading indicators. The only Irish stocks in Morgan Stanley’s European model portfolio are Tullow Oil (rated overweight by MS) and Ryanair (underweight). Italy has come under extreme pressure today, with political instability not helping matters. Summing up the gravity of the situation, Nordea in a note released earlier today warned that:

 

The printing press at the ECB increasingly seems to be the only weapon left to save the Euro area from meeting its Waterloo in Rome.



And finally, on a lighter note, Twitter has provided some good chuckles in recent days, such as:

 

From @Makrotrader in Sweden: “I really really like Tzatziki. But I will boycott that as well. It is over. No more Greece. Good thing they don´t have good wines

 

and from @drmarkperry in Ireland: “I wouldn’t buy stock in Groupon with an 80% group discount coupon

Market Musings 2/7/11

with 4 comments

It’s hard to believe that we’re already into the second half of the year. Looking over the books for H1, I see that in euro terms my share portfolio was down 1.3% in the first six months of 2011, but this doesn’t concern me unduly, given sterling’s 4.6% decline against the single currency during the period (my UK exposure has oscillated between 40% and 51% of my portfolio since the start of the year). While I would obviously would like to be repeating last year’s double-digit gains, given the troubled macro backdrop for me this year has been more about trying to hold on to what I have than trying to chase alpha. Looking ahead to H2, the removal of QE2 is likely to have serious consequences for risk asset valuations, while the upcoming results season should bring a lot of profit warnings our way. Speaking of which, an Ernst & Young survey during the week revealed that UK plcs issued 75 profit warnings in Q111, the largest number since Q109 and a 47% increase on Q410, with most of the profit warnings occurring in the retail, media and support services sectors. I’ve tried to position myself for what I see happening in H2 as well as I can, by remaining overweight cash, and selling the more expensively rated consumer-facing stocks in my portfolio since the start of the year (the latter strategy has been vindicated by recent profit warnings in the UK in particular).

 

I divide my portfolio into two segments – the biggest one comprises my “core positions” – the ones that I see as long-term holds due to their inexpensive ratings, strong market positions and “will never give me a sleepless night” characteristics. The smaller one is my trading portfolio – the stocks I intend selling once they hit my price targets. There are only four names in that – France Telecom, Ryanair, Playtech and Trinity Mirror. France Telecom has been good to me over the years, paying me a 9% gross dividend yield each year since I bought it, but I’m worried about the sustainability of its business model over the longer-term and also the political interference which prevents it from cutting its bloated domestic workforce. Playtech has a potentially huge structural opportunity as gaming markets liberalise, but I fell out of love with it due to its handling of its recent acquisition of businesses from its largest shareholder. Trinity Mirror‘s businesses might be very exposed to the UK consumer, but I see it as a value play. The company prints 5 national newspapers and 160 regional titles in the UK, makes underlying operating profits of £120m a year and has cut net debt by 25% in the past year to £266m, thus giving it the financial staying power to keep going as weaker competitors go by the wayside. While it’s undeniable that more and more advertising will transition away from print, it doesn’t bother me if the pie shrinks so long as Trinity Mirror’s share of the pie is able to grow to make up for it. Trinity Mirror also owns freehold property assets worth 72p a share, versus a current share price of around 42p. So as debt shrinks and competitors exit the market, I see good upside for the shares from here. Ryanair looks a strange one to have ready to be drop kicked out of here, but I see it as a hedge against the oil stocks in my core portfolio. If oil sinks in H2, Ryanair should spike up and I have a few things in mind to recycle the proceeds into when the time comes.

 

(Disclaimer: I’m a shareholder in Uniq plc) In other news, I was interested to see Greencore’s share price fall below €1.00 during the week – the way it has been trading of late I wonder if some market observers are betting on a successful outcome in its battle to buy Uniqwhich some brokers suggest would be at least part funded through a rights issue. Speaking as a Uniq shareholder I would welcome a share alternative, given the synergy benefits that would arise from a merger between the two.

 

Here are some interesting statistics I saw during the week: Morgan Stanley says China produces 80% of the world’s toys, and accounts for nearly half of the clothing imported into Europe.

 

One51 parted company with its CEO Philip Lynch last night. I’ve written about the company before, and again reiterate my view that the company should seek a full listing on the Irish Stock Exchange to improve liquidity and transparency. (Disclaimer: I am a shareholder in ICG plc) I wonder whether Lynch’s departure will have any consequence for its holdings in listed companies ICG and IFG, not to mention grey market listed NTR.

Written by Philip O'Sullivan

July 2, 2011 at 1:24 pm

Market Musings 27/03/11

leave a comment »

A couple of things caught my eye since my last update on Friday. China provided two of those, the first being the news that the country has 879m mobile phone users, more than the combined population of the EU and the USA. The second being the eye-popping statistic that 240,000 new internet users go online every day in China. Elsewhere, Samsung revealed another interesting statistic, namely that electric power plants in the U.S. consume 49% of the water used in that country.

Morgan Stanley came out with its Global Investment Perspectives late last week. It warned that, for European equities, “consensus estimates for margins are far too optimistic” given the pressure being applied by rising input prices. MS sees European stocks posting EPS gains of 12% this year against consensus of a 16% rise. If true (and I’d be inclined to agree with MS), we could be seeing a lot of downgrades as the year progresses. I wrote a piece about the effects of input price increases on Irish plcs in the March issue of Business & Finance magazine.

In my last blog I said that Osborne’s raid on the North Sea oil and gas producers was ill-considered. This article gives plenty of ammunition for those of you who share my view.

The Aussie dollar moved towards record levels against the US dollar, which to me says about as much about Australia’s economic strength as it does about America’s monetary policies.

The perils for bloggers of writing about companies came to mind upon reading this.

Are UK small caps poised for a comeback? Click here to listen to the views of legendary fund manager Gervais Williams.

Closer to home, Bloxham Stockbrokers also revealed its preferred picks in the Irish market. The battle for the Irish owned Maybourne (Claridge’s, Berkeley and Connaught) hotel group is also nearing the endgame. I was pleased with Ireland’s victory over Macedonia but FAI bosses are surely less pleased with their ticket pricing strategy, which saw only about 60% of seats filled at Lansdowne Road. I also note that Independent News & Media is considering charging for some of its web content, according to reports on Bloomberg. Presumably they’ll follow the Irish Times’ lead and start charging for access to its archives. The VHI should be condemned for its bone-headed decision here, which serves only to reduce competition, raise rates and increase overcharging.

So what’s happening in Ireland next week? We got confirmation that the Irish banks’ stress tests will be released at 4.30pm on March 31st. Joe Brennan at Bloomberg’s Dublin bureau has a nice primer on this that’s worth a read. In terms of corporate news, we will have results from engineer Kentz tomorrow, travel software provider Datalex on Tuesday and financial services group IFG on Wednesday.

Finally, on a lighter note, click here to see the Keynes versus Hayek rap video.

Written by Philip O'Sullivan

March 27, 2011 at 5:55 pm

Follow

Get every new post delivered to your Inbox.

Join 1,459 other followers

%d bloggers like this: