Posts Tagged ‘Playtech’
(Disclaimer: I am a shareholder in Irish Continental Group plc) The main news since my last update has been around ICG, whose shares have surged on the back of the announcement of a tender offer pitched at €18.50, or circa 15% above where they closed at on Wednesday. This announcement was contained in its interim results release, which revealed a resilient performance despite the macro headwinds. Revenues were flat, while good work on the cost side meant that EBITDA was only down €1.8m year-on-year in spite of a €4.5m increase in fuel costs. The company is also putting its balance sheet to work with its €111.5m tender offer, which I’m guessing should put net debt / EBITDA at circa 2x by the end of next year, so still undemanding. ICG has also announced the disposal of its Feederlink business for up to €29m, which looks like a great deal – 16x PBT. In all, yesterday’s news reaffirms my view on ICG – a very attractive business model (effectively a duopoly with Stena on the Irish Sea) with potent barriers to entry (capital, control of key port slots and other infrastructure), very strong cashflow generation with no major medium term capex requirements, huge operating leverage benefits once an eventual Irish recovery emerges and a fat dividend to boot.
Elsewhere, Kentz released good H1 results, with revenue +9%, PBT +36%, net cash +36% (to $241m) while its backlog, at $2.54bn, is up 6% in the year to date. I’ve bought and sold Kentz before and would definitely consider putting it back into the portfolio at some stage – it’s a very well-managed business that is plugged into an area with buoyant long-term growth prospects where the long-term nature of work projects provides good visibility on revenues.
Switching to TMT stocks, betting software group Playtech released its H1 results yesterday morning, which revealed a very strong performance. It’s a stock I used to hold but which I sold on corporate governance grounds, which is a pity as I like the structural growth story around the sector, but not enough to hold a stock that has given me plenty of sleepless nights in the past!
(Disclaimer: I am a shareholder in Independent News & Media plc) INM released its interim results this morning. These revealed a 26% decline in operating profits to €25.4m on revenues that were 4% lower at €272.2m. Trading conditions are, unsurprisingly, described as ‘difficult’. I was, however, surprised by the sluggish progress on the deleveraging front. Net debt fell by €3.5m, or less than 1%, since the start of the year. Led by the drop in profitability, free cash flow halved to €12.7m (H1 2011: €23.0m), but most of this was eaten up by cash exceptional items. INM’s retirement benefit obligations widened to €187.8m by the end of June, from €147.0m at the end of 2011. A potential sale of its South African business would significantly improve INM’s balance sheet and save millions in annual interest costs, and on that note I was pleased to see the group confirm in the presentation accompanying the results that it has received 2 bids for that unit. In all, there is little to get exited about from this release. INM is under pressure due to the tough macro conditions, while its high leverage ratchets up the risks around the company. That is not to say that catalysts for a re-rating are difficult to identify. These include a sale (on reasonable terms) of the South Africa business, a recovery in its 30% owned associate APN’s share price, a resolution of its pension issues and an improvement in advertising conditions. However, identification and successful execution are, clearly, two different things, so I’m disinclined to increase my stake in INM (currently 120bps of my portfolio) for the time being at least.
(Disclaimer: I am a shareholder in France Telecom plc) There was further disappointing news from the French telecom sector, with Bouygues revealing that its profits in that area have sunk due to intense price competition from the new entrant, Iliad (whose results this morning have come in ahead of expectations). France Telecom is also being impacted by this pressure, but the impact is somewhat mitigated by Iliad’s use of FTE’s network. Speaking of FTE’s network, the group’s chairman was quoted by Reuters as saying they are in preliminary discussions with rivals about sharing 3G networks to reduce costs, which would be a welcome move.
Finally, smallcap financial IFG released its interim results today. These revealed a deterioration in profits in its continuing businesses, with UK profits falling due to falling SIPP volumes, investment in risk and compliance, and challenging conditions in the IFA space, while losses in Ireland have widened due to difficult economic conditions. The operating performance is, however, overshadowed by news of a £30m share buyback, which adds IFG to a growing list of firms (CPL, Abbey, Ryanair etc.) here that have launched similar measures in recent times. If only our plcs had the confidence to invest in growing their businesses through acquisition / greenfield initiatives that would (if done properly) augment their growth potential instead of engaging in de-equitisation. Oh well!
Time to take a break from the study and check up on what’s happening in the markets.
This evening Ireland’s Department of Finance released the latest set of Exchequer Returns data, covering the first four months of the year. As happened last month, a lot of commentators seem to be getting very excited about the headline improvement in the deficit. For the first 4 months of 2012 the deficit was €7.1bn versus €9.9bn in the same period of last year. So, a €2.8bn improvement. Actually, no it isn’t. Because there are a number of one-off cash items that need to be adjusted for. Three in particular. Last year’s deficit included a €3.1bn promissory note payment which doesn’t feature in this year’s computation. This year’s deficit includes an outlay of €0.4bn representing a loan to the insurance compensation fund, while this year’s tax receipts are flattered by the receipt of €250m in late corporation tax payments from the end of last year which were received in January. So the Jan-April 2012 headline deficit is a net €150m worse than it should be, making for an underlying deficit of €7.0bn, while the Jan-April 2011 underlying deficit was €6.8bn. In other words, the underlying deficit is marginally worse than it was this time last year. Another important point to note is that voted spending, which is the discretionary part of government expenditure was €15.1bn in the first four months of 2012 versus €14.8bn in the same period last year. So, government discretionary spending is on the rise. And to think that some politicians and commentators maintain that we’re living in an era of savage austerity!
Retailer French Connection, a favourite among the UK value investor community, put a fifth of its stores up for sale. It’s not one that I particularly like given my bearish tack towards UK retail in general and my concerns about leases. The retailer’s 2012 annual report reveals operating lease payments on property of £28.1m and total property lease commitments of £217.2m, the vast majority (>80%) of which expire in over five years time. These are pretty chunky numbers for a company that made pre-tax profits of £5.0m last year. I appreciate that it has net cash of £34.2m but even this isn’t enough to allay my nervousness.
Playtech, which I recently sold out of, released a solid Q1 update this morning. Within it management announced that it is not to pursue the recently announced related party acquisition, opting instead for a licensing deal, while the company is also to pay the chairman £500k to buy out his share options, so that he can be considered independent for the purposes of the UK Corporate Governance Code. Overall, there’s nothing in it that I can see to make me reconsider my recent selling decision.
Kerry Group issued a trading statement at 12pm today in which it maintained FY earnings guidance despite challenging conditions in the Irish and UK consumer foods markets. On the conference call that followed the release management hinted that input price pressures should ease as the year progresses, which is a positive, but of course we’ll have to see if this benefit is countered by still fragile economic conditions in many of its key markets.
(Disclaimer: I am a shareholder in Independent News & Media plc) Australasian media group APN issued a trading update in which the group guided that H1 profit will be marginally behind prior-year levels due to weakness in New Zealand in particular. The group has initiated a strategic review of its assets in that market which could potentially lead to a sale of all of its New Zealand assets. I have previously argued that INM should sell out of APN altogether and if there is buying interest in media assets in that part of the world (as APN acknowledges) I would contend that now would appear to be a good time to try to kick something off.
Bloomberg published an interesting comparison on the Irish and Spanish property crashes.
Given events over the past few days it’s no surprise that this blog is once more focused on the TMT sector.
(Disclaimer: I am a shareholder in both Trinity Mirror plc and Independent News & Media plc) On Friday Richard Beddard asked me why I didn’t appear to be particularly concerned about Trinity Mirror’s pension deficit. Regular readers of this blog know that pensions are always a concern for me – I always incorporate the pension deficit or surplus into my valuation models, while as a former shareholder in Uniq (now a part of Greencore) I know all too well what can happen if the pension deficit gets too big. In the case of Trinity Mirror, at the time of writing the company has a market cap of £79m, while it exited 2011 with a pension deficit of £230m and net debt of £200m. So net long-term liabilities of more than 5x its current market cap, which is certainly concerning. This concern is somewhat alleviated by its freehold property assets of £177m, while last year it generated after-tax operating cash flow of £75m. With well-documented cost take-out measures underway and the UK advertising market still tough, I think it’s reasonable to assume that as the cost measures flow through and advertising picks up that Trinity Mirror can hold cash generation reasonably steady for the next 2-3 years. With modest capex requirements for the business and no dividend payout, this should see net debt more or less eliminated by end-2015. While it’s tricky (if not impossible) to predict where the pension deficit will be by then, it only has to improve by £53m (for information, it deteriorated by £70m last year, so moves of this magnitude are not unthinkable) before it’s covered by the property interests. Obviously, a marked deterioration in the UK newspaper sector or adverse market moves that significantly impact the pension deficit pose risks to this thesis, but if I’m right, I should see the value of my TNI shareholding rally strongly from current levels. One thing that TNI observers may wonder about the above analysis is why I’ve left out the current discussions between the publisher and the pensions authorities in the UK about temporarily reducing payments into the scheme – all other things being equal, these cashflows will be used to nuke liabilities (i.e. less money going to fix the pension deficit = more money going to fix the net debt), and given that I treat net debt and pension deficits the same in my investment models it has little impact on my sentiment towards the company.
Speaking of media, I came across an interesting survey of advertising expenditure in Ireland, which is quite timely in light of recent developments in the media sector here. While digital is growing at a rapid rate, it is worth noting that ‘old media’ still accounts for the lion’s share of advertising expenditure. I accept fully that there are clear structural shifts underway in terms of where ad spend is migrating to and from, but I remain confident of my central thesis for both INM and TNI that even though the overall ‘pie’ is shrinking, they have the ability to counter this to at least some degree through market share gains as weaker competitors exit the market. INM, as it likes to remind people at every opportunity (!) “is the only profitable newspaper and media firm in the country“, and many of its titles, at both a national and local level, compete with financially challenged rivals. For Trinity Mirror, the firm’s 130 regional titles and 5 national papers appear to be well placed in terms of right-sizing the cost base (this list suggests that it has been more proactive to date at weeding out underperforming titles than its peers) while the well-documented challenges faced by rivals such as Johnston Press could see an acceleration in rival titles exiting the market in 2012/13.
(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) Following the recent news that two Norwegian kraftliner mills have gone bust, another of Smurfit’s rivals, French containerboard producer Papeterie du Doubs, has gone into liquidation. All of this is supportive for pricing in an industry long known for its problems with overcapacity.
(Disclaimer: I am a shareholder in Playtech plc) In the betting space, William Hill’s IMS revealed a solid overall performance, led by its online division, where net revenues rose 33% (relative to a 12% increase in group net revenue). This has bullish read-through for the minority shareholder in the William Hill Online joint venture, Playtech, and it was no surprise to see PTEC’s shares gain 7% on Friday to close at 370p. This is just 10p below my breakeven level on a stock that has repeatedly disappointed me, and if I can get out of it at 380p or better it will be an escape of Harry Houdini proportions!
(Disclaimer: I am a shareholder in Ryanair plc) I was interested to read that Flybe has pulled out of Derry Airport in Northern Ireland. This will likely result in (very) modest gains for Ryanair, whose Derry-Liverpool and Derry-Birmingham routes will presumably pick up some traffic from Flybe’s discontinued Derry-Manchester service.
In the construction arena, Irish heating and plumbing supplier Harleston bought Heat Merchants and Tubs & Tiles, which came a little bit out of the blue for me given all the chatter linking Saint-Gobain to these assets. The future of the 11-strong chain of Brooks’ builder provider units remains unclear, so hopefully we’ll get some clarity on that this week.
(Disclaimer: I am a shareholder in Tesco plc) In the blogosphere, Valuhunter did up (with a little help!) an absolutely fantastic post on Tesco that’s well worth checking out.
Finally, if you ever feel like you’ve made a serious blunder in work, just remember that it could be worse – at least you haven’t accidentally fired every single one of your colleagues.
Having had a rather productive day in terms of college and making the final edits to my articles for the next issue of B&F I thought I’d “treat myself” to writing a short blog on what has been grabbing my attention in the past 24 hours or so.
(Disclaimer: I am a shareholder in Ryanair plc) To start with, I was interested to read in Bloxham’s morning wrap that political wrangling may harm Boeing sales – might this further delay a future Ryanair mega-order of new aircraft and increase the likelihood that Europe’s biggest low-cost carrier will pay a second €500m special dividend in addition to the one widely expected in RYA’s FY13 financial year? My own estimates for Ryanair have the carrier paying €500m out in each of FY13 and FY14, so let’s see how this dispute plays out.
(Disclaimer: I am a shareholder in Playtech plc) In the TMT space, UTV Media issued an update in which it revealed a significant contract win for its talkSPORT franchise – under the terms of the deal talkSPORT becomes the Premier League’s global audio partner, meaning that it will broadcast commentary outside of Europe on all 380 Barclays Premier League games in multiple languages. This could well prove to be a very significant win for UTV over time. Elsewhere, Playtech announced that it is to buy even more assets from Teddy Sagi, paying him over €100m for B2B, B2C and property holdings. Given well-documented concerns about deals of this nature (Sagi is presumably in the Guinness Book of Records for the most related party deals with a single plc in history) it was no surprise to me to see the shares move lower today. I really have only myself to blame though, having previously whined about how the stock has repeatedly left me feeling “legged over” (!) but at the same time holding on to it in the hope that I could sell it higher up. There’s a lesson in that for investors everywhere.
In the construction space, it appears that the second largest builders merchant chain in Ireland may be carved up between Saint-Gobain and Grafton. Given that Saint-Gobain is quite a rational competitor for Grafton et al in the UK, I wouldn’t see any negative read-through for Grafton if Saint-Gobain were to materially step up its presence in this market.
Greencore bought a convenience food manufacturing business in the US, bolstering its presence in that market. They are paying $36.0m for the business, representing historic EV/Sales, EV/EBITDA and P/B multiples of 0.55x, 6.3x and 1.8x which to me look reasonable enough. Obviously the main focus for Greencore remains its UK operation, but for information on the conference call Greencore said that post the acquisition total USA sales will be pro-forma approximately £160m, which on a back-of-the-envelope calculation represents around 14% of group revenues. Greencore USA’s key clients include Ahold, Delhaize and 7-Eleven – while I don’t want to detract from those impressive customers, I note that these are not (obviously) clients of Greencore in the UK – I wonder if it could better improve its competitive position by emulating fellow Irish food stock Aryzta and ‘following the client’ – Aryzta has become a key supplier to McDonalds across at least two continents, for example. Building a relationship like that would reduce the risk for Greencore of having its margins crushed by its customers, given that it is in their customers’ interest to ensure that their suppliers are in good financial shape.
(Disclaimer: I am a shareholder in BP plc) Switching to macro news, regular readers of this blog will know that I’m unmoved by some of the more bullish commentary from certain quarters in this country about the Argentine economy, partly because of my first hand experience of having traveled through the country last year and having spoken to locals about the severe hardship many of them are experiencing, and partly because the Argentine government’s flair for doctoring statistics means that one should take any reports based on government produced data with a pinch of salt. Anyways, the latest development there is that the government has moved to nationalise YPF, a development which presumably serves to inform overseas investors that they would have to be out of their mind to put money into Argentina. Whatever about any short-term gains from YPF, how does driving away FDI help aid Argentina in the longer term? I am a little concerned about BP’s $7bn stake in Pan American Energy, especially given the war of words between Argentina and the UK over the Falkland Islands. Wexboy picks up the baton and beats Argentina’s crazed politicians with it here.
Finally, reports that the Irish Central Bank is to buy the half-built shell of what had been intended to be a future headquarters for Anglo Irish Bank are to be welcomed, given that it removes an eyesore on the quays that greets many of the 1.7m ferry passengers that use Dublin Port each year (not to mention those of us who live in that part of town!). Now, if NAMA could have similar results with the rest of its portfolio we’d be having some real progress!
Just when I thought the volume of newsflow would ease off as we reached the end of the results season, we get another slew of trading updates, placings and news of commercial opportunities!
(Disclaimer: I am a shareholder in Irish Life & Permanent plc) IL&P’s results this morning contained few surprises given prior guidance provided by management on impairments and arrears. The loan-to-deposit ratio improved to 227% last year from 249% in 2010, and this is of course miles offside the Central Bank’s target of 122.5% by the end of 2013 (I should note that €500m of deposits from Northern Rock moved into ptsb after the year-end). The net interest margin rose 10bps yoy to 0.96%, helped by rising variable mortgage rates and a greater reliance on low-cost ECB funding. We’ll know by the end of this month what the State’s intentions for the future of the banking unit is. Until we get some clarity on that, I remain inclined to steer clear of the stock (my current position is a residual legacy holding that scarcely seems worth the effort of selling!)
(Disclaimer: I am a shareholder in Datalex plc) Friday’s results from Datalex were rather lost in a deluge of news from the financials sector along with Ryanair’s chunky share buyback. Going into them I had forecast revenue, EBITDA and cash of $28.6m, $4.6m and $12.9m respectively. In the event these came in at $28.0m, $4.3m and $12.5m, so a little bit behind me but bang in line with what brokers Davy (revenue of $28.0m, EBITDA of $4.3m) and Goodbody (revenue of $28.5m, EBITDA of $4.3m) had forecast. In terms of my model, not a lot has changed. I now expect revenues of $29.3m and EBITDA of $5.3m in 2012, which is perhaps too conservative given that the company will have at least eight new paying clients this year. Against that I’m a little nervous of how the tough economic backdrop could be impacting demand for a number of its existing clients. Here I would point to the $0.4m provision Datalex booked in its 2011 accounts against its receivable from Spanair, which ceased trading in January. In any event, the model now spits out a valuation of 62c/share (versus the previous 64c / share), which is 24% above where the shares closed at on Friday (50c). Datalex is certainly cheap, at 6.4x 2012 EV/EBITDA (on my estimates) and with the balance sheet bolstered by gross cash of $12.5m (just over a quarter of the market cap) it’s not a stock I’d lose any sleep over. I’m happy to stay long, and would probably top up my position if I realise some gains elsewhere in the portfolio (I’ve as much total market exposure as I’m comfortable with for now).
(Disclaimer: I am a shareholder in Playtech plc) Elsewhere in the TMT sector, I note that Playtech is one of three firms shortlisted to provide an online betting platform for Greece’s OPAP, which is Europe’s biggest betting firm. While we’ll wait and see what the outcome of this process is, it’s encouraging to have seen a consistent stream of good news from Playtech of late.
(Disclaimer: I am a shareholder in France Telecom plc) In the final bit of TMT related news, I was interested to read that France Telecom’s new low-cost competitor in the French mobile space, Free, appears to be having serious teething problems. This is presumably deleterious to Free’s customer acquisition strategy, and by extension bullish for the likes of France Telecom and Vivendi. I wrote a recent detailed piece on France Telecom here.
In the healthcare space, Merrion Pharma released results on Friday afternoon. With revenues, EPS and net cash all declining, the results looked just like you’d expect results put out just before the weekend kicks off to look!
(Disclaimer: I am a shareholder in Total Produce plc) In the food sector, I picked up a story from the South African media that said the third biggest shareholder in Capespan, Bidvest, has given up on plans to boost its stake in the firm. The article speculated that either of the two biggest shareholders, Zedar and Total Produce, may buy out Bidvest. Given the strategic importance of Capespan to Total Produce, I would welcome an increase in TOT’s stake in the firm.
(Disclaimer: I am a shareholder in PetroNeft) Switching to the energy sector, PetroNeft issued a reassuring update this morning. Following a recent run of disappointments, it was good to see a 36% increase in its reserves while output was steady at 2,300 bopd. So, no surprise to see the shares open strongly this morning. Elsewhere, Providence announced that it is raising $100m to help commercialise its recent oil find offshore Cork and pay down convertible debt.
Now that I’ve returned from my travels, this is the first of what’s likely to be three catch-up blogs. In this one I’m going to review the main developments over the past week across the universe of stocks I follow, in the second one I’ll examine the key ‘Chinese takeaways’ from my trip and in the third I hope to catch up on what my peers in the Blogosophere and the media have been saying recently.
(Disclaimer: I am a shareholder in Trinity Mirror plc) In the media sector, Trinity Mirror issued FY2011 results. Going into them I had forecast revenues of £731.0m, EBIT of £99.6m and net debt of £195.8m. In the event, these came in at £746.6m, £92.4m (the main variance here was that exceptional items were c. £5m worse than expected) and £200.7m respectively. One thing that did catch me offside was the pension deficit – this widened to £230m from £161m in FY2010. This is a very material move – the deterioration is the equivalent of 27 pence per share, which compares with Trinity Mirror’s current share price (at the time of writing) of 36.5p. Updating my DCF based valuation model produces an equity value of just 13p per share, which represents 63% downside from current levels. However, this valuation is extremely sensitive to movements in the pension deficit – a 10% move in the pension deficit moves the price target by 9p. I would also note: (i) the strong asset backing (freehold property had a book value of 72p/share in 2010); (ii) the further self-help moves the group could implement on the cost side; and (iii) the reasonably strong cash flows (operating cashflow was £76m last year), which give me confidence that the group can nuke its net debt over the coming 3-4 years. Overall, for me Trinity Mirror is downgraded to a hold.
(Disclaimer: I am a shareholder in Total Produce plc) In the food sector, Aryzta posted its H1 results. There wasn’t a whole lot in it for me, with management saying: “our EPS guidance of 338 cent for FY12 and 400+ cent for FY13 remains unchanged”. Elsewhere, Total Produce announced this morning that it is to be included in the ISEQ 20 indices, which may prompt some modest index buying.
(Disclaimer: I am a shareholder in Playtech plc) In the technology sector, there were reports that Playtech and William Hill are to open talks on their WHO joint venture shortly. From my perspective, the best option for both parties is for William Hill to buy Playtech out (given the difficult working relationship, William Hill’s online needs, Playtech’s balance sheet being significantly strengthened at a time when it’s looking to do deals etc.), a theme explored by IC here. Playtech also issued FY2011 results, which revealed a strong performance (revenues +46%, gross income +41%), while net cash was a healthy €137.3m. Management also signaled that the group has made a strong start to 2012, and that the company has made progress towards achieving a full listing. Playtech’s share price has surged in the past week, tipping 350p and bringing it closer to my breakeven level (~380p). I remain an ‘unhappy holder’ of Playtech but will be ‘less unhappy’ if I can get out of the position flat or slightly up.
In the energy space, Tullow’s FY2011 results contained few surprises, save for a big ramp up in the dividend (from 6p to 12p). That said, the implied yield is only ~1%, so hardly anything to get excited about.
In the recruitment sector, CPL Resources acquired a Swedish firm, ERHAB. While no details of the consideration paid were released, I would expect it to have been very modest – high six figure / low seven figure territory – given CPL’s past form and its understanding that when you buy a recruitment firm you buy a business whose assets walk out the door at 5pm every evening. Hence, this is likely to be about buying a small number of individuals and then investing in building a strong team around them to increase ERHAB’s share of the market. It’s a model that has worked well for CPL both at home (CPL is the largest recruitment firm in Ireland, and has successfully evolved from being a niche IT recruitment specialist – e.g. CPL = ‘Computer Placement Limited’ – into a diversified operator) and abroad (CPL generated 33% of its permanent fees outside of Ireland in FY2011).
Finally, Siteserv has agreed to be sold to a vehicle owned by businessman Mr. Denis O’Brien. Under the terms of the proposed deal, shareholders will receive approximately 3.92c / share. I find this a little surprising given that the scale of Siteserv’s debts might have been expected to result in no consideration going to equity holders. However, IBRC (the former Anglo Irish Bank) seems happy with this arrangement. Overall, it seems the ISEQ is going to lose yet another company.
It’s the calm before the storm as the volume of company newsflow has eased a little in recent days, but with a deluge of results due over the next week or two I think I’ll find plenty more to write about over the coming days.
(Disclaimer: I have an indirect shareholding in Dragon Oil plc) To start with the energy sector, Dragon Oil ended takeover talks with Bowleven, which rather takes the gloss of my recent narrative of how this will be a year for consolidation in the industry. Still, one swallow does not a summer make!
Turning to the food and beverage sector, Valuhunter did up a good piece on Molson Coors, which reminds me that I have to get around to doing up a piece on C&C one of these days. Speaking of alcohol, did you know that for a period Guinness was exported to the UK in custom-built ‘beer tankers’? Elsewhere, Glanbia, a stock I sold going into the results, released strong FY numbers, but cautioned that earnings momentum will slow in 2012 due to tougher conditions. I’ll post up a piece on Glanbia later today. Finally within this sector, Fyffes posted good numbers today, with results towards the upper end of guidance. It sees more progress in 2012 and hints at doing more share buybacks.
(Disclaimer: I am a shareholder in Irish Life & Permanent plc) In the financials space, IL&P said that it would record a big rise in impairment provisions when it releases its 2011 results. This cannot come as a surprise to anyone given recent commentary from the likes of RBS and Bank of Ireland.
(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) While it had been flagged at the time of the recent Q4 results, I was pleased to see Smurfit Kappa Group announce that it has successfully extended its debt maturities. This will help to further lower the risk profile of the stock, as well as increase management’s flexibility. So good news all round.
Here’s an interesting statistic – ITV says that, on average, people in the UK spend 4 hours and 2 minutes every day watching television.
(Disclaimer: I am a shareholder in Playtech plc) I was pleased to see news that Playtech has entered the Mexican market, partnering up with the country’s largest land based gaming operator. This is a further affirmation of the quality of the group’s product, but judging from the lacklustre share price performance it will need to do more to improve market sentiment towards the stock.
Finally, WordPress tells me that February was the ninth consecutive month in which the numbers of visitors to this blog increased. I’d like to thank you all for your support, and as ever please feel free to get in touch with suggestions on things you’d like me to cover on this site.
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.
Gambling, alcohol, weapons and fossil fuels all feature prominently in this blog, which tells me that ethical investment funds are probably not for me!
(Disclaimer: I am a shareholder in PetroNeft plc) In terms of the oil sector, I felt quite ill on Thursday as I watched PetroNeft’s share price implode on significant volumes. The damage was done by one of its larger shareholders, investment fund Bluegold, dumping its shareholding. I don’t believe that this trade is any specific reflection on PetroNeft as Bluegold has also in recent days sold down positions in Petroceltic, Deo Petroleum and Mediterranean Oil & Gas. I also note this Reuters report from late last year. Unfortunately, the problem for small-cap oilies in general is that there is a view doing the rounds that they are unable to tap funding in these challenging times, so there seems to be a paucity of buyers to step into the breach. However, I can’t help but wonder if small-cap E&P names will resemble coiled springs whose share prices are ready to explode higher until either (i) sentiment and/or the funding environment changes or (ii) large-cap oil stocks start bidding for them as a way of bolstering their reserves at relatively inexpensive prices. Time will tell if my hunch is correct.
Staying with the broader energy sector, Kentz, which I previously was a shareholder in, released a solid trading update. Management see sales and profits marginally ahead of consensus, while net cash at the end of 2011 was an impressive $223m. One that I still have on my watchlist.
(Disclaimer: I am a shareholder in Playtech plc) In the betting space William Hill issued a trading update which contained two things that caught my attention. Firstly, the company said that it is to write down its telephone betting business’ book value (£47m) to zero. Internet displacement strikes again! This leads me on to the second thing that I was interested to learn – in 2011 net revenue in its online unit, which Playtech is a minority shareholder in, grew at over 20% for the second year running. While this was broadly in line with what the brokers I follow were expecting, it is nonetheless reassuring. However, my stance remains that I will look to exit Playtech at a suitable opportunity.
Moving from the bookies to the pub, Richard Beddard did up a good post on Greene King. Regular readers will know that I recently bought shares in one of its competitors, Marston’s. I quite like MARS, well, obviously – I wouldn’t have bought shares in it otherwise! – but I note that Richard also did up a relatively cautious piece on it two years ago which serves as a useful Devil’s Advocate view for when I get around to doing a proper write-up on why I pulled the trigger on it. For now, here is a summary on why I bought Marston’s.
(Disclaimer: I am a shareholder in Irish Life & Permanent plc) The Troika gave Ireland another pat on the back during the week. This has been extensively covered elsewhere, so I don’t propose to go through it in detail here. What did catch my attention from an equity investor’s perspective was the Department of Finance’s comments about Irish Life & Permanent in its press release following the visit. The government will make a decision on IL&P’s “future direction” by the end of April, which tells me that a relaunch of the previously aborted sale process around Irish Life will likely go ahead in the near future, possibly as early as when contracts are agreed with AIB to finalise Irish Life as the latter’s new insurance jv partner. The recap of Irish Life & Permanent is due to be completed by the end of June, so whether the money comes from private sources (through a sale of Irish Life) or the State will be known by then. We’ll also know for once and for all if PTSB has a future as a standalone entity. I’ve a piece covering all of these issues in more detail here.
HMV, which I’ve written extensively about before, announced a debt deal and improved supplier terms. While the announcement was greeted with euphoria, I don’t see it changing my view (terminal) on the outlook for its business model.
As noted before, my old friend Wexboy has launched an ambitious, and very worthy, undertaking – The Great Irish Share Valuation Project. While I prefer to plod through the Irish and UK markets (with the occasional overseas name thrown in) on a case study-by-case study basis, I like his use of an excel file to plot his recommendations. Here’s a downloadable summary of my views on the stocks I’ve covered in detail on this blog.
There has been a lot of media coverage of the upcoming referendum on independence for Scotland. The debate seems to be heavily based around economic matters, which is no surprise given the large transfers Scotland receives from England. I note a report in last weekend’s Financial Times which said that including its geographical share of oil revenues Scotland would have run a 10.6% fiscal deficit in 2010. It’s worth noting that Greece’s deficit in the same year was -10.5%. For years Alex Salmond said Ireland was a key part of his economic model for an independent Scotland. Looking at Scotland’s fiscal position he may get his wish.
This is an interesting statistic – US online advertising spending will surpass print ad spending for the first time in 2012.
The volume of newsflow is still quite light, but at least what little there is, mainly in the form of trading updates, has provided much food for thought.
Computer games retailer Game Group issued a very grim update covering the Christmas trading period. Like-for-like sales in its UK and Irish stores were -15.2% in the 8 weeks to January 7th. This was worse than the -10% recorded in the 49 weeks to the same date, so Christmas offered no respite, even in spite of the much milder weather we have seen this winter. Even more ominously, Game said that “the difficult market conditions raise the likelihood that [Game] will not meet its EBITDA covenants (fixed charge coverage and leverage) when they are tested on 27 February 2012″. Given those pressures, and the structural issues around computer game retailing (both the encroachment of multiples like Tesco into the space and internet operators) it’s not a stock for me.
(Disclaimer: I am a shareholder in Ryanair plc) Switching to the travel sector, Ryanair announced that it has opened its 50th base – its first in Cyprus. This marks the latest push by the carrier into Southern Europe, and is a further setback for tour operators and charter airlines alike.
In the construction space, Grafton issued a very solid trading update, with buoyant sales in the UK (helped by good weather) in November and December in particular driving a modest upgrade to its 2011 profit guidance. I was pleased to see a modest uptick in sales trends in its Irish business (circa 25% of revenues), but this was presumably also helped by easy comparatives given the snow disruption in the previous year. Its peer SIG also revealed that 2011 was a bit better than it had projected, but it did add that it believes “market volumes will be slightly down overall in 2012″.
(Disclaimer: I am a shareholder in Abbey plc) Staying with construction stocks, housebuilder Barratt Developments issued a strong trading update this morning, revealing a 40% increase in operating profits and saying that it has a “strengthened forward order book” going into the second half of its financial year. It noted that while house prices overall were stable, it saw “greater robustness” in the South-East of England, which has positive implications for Irish listed Abbey, which has most of its operating units in that area.
In the food sector, Swiss-Irish baked goods group Aryzta raised just over €140m from a placing. This is a shrewd move that strengthens its balance sheet and gives it more flexibility to undertake more deals in the future.
(Disclaimer: I am a shareholder in Playtech Ltd) In the blogosphere, Mark Carter writes of his decision to sell his shareholding in Playtech. I’m minded to follow him to the exit, but I’m in no particular rush to do so (there is not a lot on my ‘shopping list’ at the moment). Elsewhere, John McElligott concludes his two part series asking if Eurozone equities offer good value at these levels.