Posts Tagged ‘Spain’
The main focus since my last wrap has been the troubling developments in Spain. There is a sense of déjà vu about that for Irish people, especially given the initial hollow denials and now the failure to grasp the nettle about the scale of the problem. It is implausible that Spain, with its circa €1trn GDP, needs ‘only’ €100bn to support its troubled banks, given that Ireland (GDP €161bn) has so far injected over €60bn into its banks (slide 49), not least given that the massive scale of the problems in Spain have been known about for quite some time.
(Disclaimer: I am a shareholder in Independent News & Media plc) The main corporate news in Ireland has been provided by Independent News & Media, whose Chairman and CFO were voted off the board at Friday’s AGM. I can only hope that these changes will prove to be the final events in a battle for control of Ireland’s largest newspaper group that have proven to be a distraction from more pressing issues such as remedying the firm’s excessive debt pile and reshaping its portfolio of assets. On the latter note, it was interesting to read reports that INM’s largest shareholder, Denis O’Brien, favours an exiting of South Africa, where senior ANC politician and wealthy businessman Cyril Ramaphosa is reportedly interested in acquiring the group’s interests in that market. My own preference would be for a sale of INM’s stake in Australasian group APN News & Media, given both that APN is exposed to a far more mature market with limited growth prospects and INM’s minority shareholding means that it has limited control over APN’s cashflows, unlike its wholly-owned subsidiary in South Africa.
(Disclaimer: I am a shareholder in Abbey plc) In recent months I’ve noted positive commentary on the UK housebuilding sector by the listed corporates in that space. Bellway’s interim management statement, released on Friday, continued this trend, with management noting improving reservations, margins and average selling prices. This strengthens my conviction around my holding in Abbey plc, which derives the majority of its profits from South-East England.
Speaking of UK housing, the Department of Energy & Climate Change released some interesting stats about insulation rates. While over the five years to April 2012 some 3m houses had seen cavity wall insulation fitted and 5m had loft insulation fitted, a significant proportion of the UK’s housing stock is still lacking adequate insulation. Some 38% of homes with lofts have no loft insulation, while 40% of houses with cavity walls have no cavity wall insulation. These are addressable markets of 9m and 8m houses respectively, which highlights the structural growth opportunity (in every sense) that’s out there for the likes of Kingspan and SIG.
In the food and beverage sector, this article highlights Diageo’s competitive advantage in the scotch whisky market.
Switching to the banks, Liberum’s Cormac Leech provided some interesting views on the UK financials, which to some extent mirrors my Eurozone-related near-term caution around Bank of Ireland, as expressed in yesterday’s case study. The one thing I would differ from Cormac on is RBS, given that while he is correct to flag its large exposure to Ireland, as I’ve outlined before RBS’ Irish unit (Ulster Bank) has a largely domestically funded balance sheet which mitigates a lot of this risk.
Finally, the Republic of Ireland plays its first game in Euro 2012 against Croatia this evening. This picture of fans at Dublin Airport’s Terminal 2 made me smile.
It never rains but it pours. After yesterday’s paucity of corporate newsflow we got a deluge of it today, along with a few interesting macro pointers. Let’s run through what’s been going on.
(Disclaimer: I am a shareholder in Glanbia plc). Glanbia released a strong trading update earlier today, with management guiding “circa 20% growth in adjusted earnings per share for the full year, on a constant currency basis”, which is at the high end of the previously guided 18-20% range. Within the statement management note weaker dairy prices, a theme I flagged last month, but this is being offset by stronger whey and US cheese prices. Overall, a very encouraging update from the company.
Elsewhere, Paddy Power also released a strong interim management statement, with its online division the key area of outperformance. Management is guiding FY11 underlying diluted EPS growth in 2011 of 15%-20%, which compares to Bloomberg consensus (before today) of +13% yoy. The group also announced the acquisition of a Bulgarian games developer. Paddy Power’s net cash was a strong €96m as at November 14th, which, as management note, gives it “significant financial flexibility”. Following on from my recent remarks about the Irish retail betting market, it is instructive to note that Paddy Power’s like-for-like amounts staked and gross win were down 6% and 11% respectively in the July 1 – November 14 period, relative to year earlier levels. I wonder how many more of its peers will be exiting the market over the coming year.
Also on the ISEQ today we got full-year results from United Drug in which the company disclosed sales and operating profit growth of 1% and 4% respectively. Management has proposed a 3% higher dividend. Overall, this is a solid out-turn given the macro headwinds from United Drug, and reflects the good work being done by CEO Liam Fitzgerald and CFO Barry McGrane, along with their colleagues.
Switching to macro matters, today’s Goldman Sachs morning note had an interesting data pointer. Spanish house prices are only down 17% since the peak in 2008, according to government statistics. This seems highly dubious, given the realities of Spain’s property market, which I’ve blogged about before here and here. Unsurprisingly, I see no reason to own any bank with material exposure to Spain.
Staying with matters macro related, structural steel firm Severfield-Rowen is a leading indicator for the construction industry in the UK. Earlier today it said that the “UK market will be tough for the next few years”, which is something to bear in mind if you’re contemplating buying any stocks with an exposure to this market.
The demands of college work have kept me away from this blog in recent days, which is a pity given how much newsflow there has been. In this entry I’m focusing on the financials in particular, along with some troubling (and inter-related) European macro indicators.
As I said in the introduction, we’ve seen a lot of troubling macroeconomic indicators. S&P downgraded its credit rating on Spain by one notch, while its negative outlook suggests that there’s more to come. Turning to the UK, in terms of the housing market, a survey revealed that more and more British homeowners are cutting asking prices, while average selling times are lengthening. Hardly something that recommends UK-focused financials and housebuilders at this stage of the cycle to investors I would think.
Speaking of recommendations, legendary investor Jim Rogers warns that bonds are in bubble territory and that the US is in for a period of stagflation. I would concur with that – see this blog post of mine from late August in which I warned that bonds were overvalued and argued that equities were too cheap – while that trade has been playing out in recent weeks, in my view it has further to go. Speaking of which, my fellow Irish equities’ blogger John McElligott sees value in some ISEQ stocks.
(Disclaimer: I’m a shareholder in Bank of Ireland plc) One sector that I’m very cautious on is the financials. And why shouldn’t I be, with research such as this note from Credit Suisse. After taking a chainsaw to the Chinese financials a few days ago, Credit Suisse sees two-thirds of European banks failing a renewed EBA stress test. It should be highlighted for my domestic readers that Bank of Ireland scores quite well, which is as expected given that it was recently recapitalised. Interestingly, that the French and German banks score particularly badly tells you all you need to know about why Merkel and Sarkozy have been so unwilling up to now to contemplate haircuts for bondholders.
I’ve written about the myth that is austerity in Ireland before. Now you can read of the myth that is austerity in Greece. But moving from myths into reality, I was struck by a really good piece by Mark McCutcheon a few days ago which illustrates the tax advantages to employers that arise from hiring unemployed people in Ireland. This is something that really needs to be highlighted at this time. Speaking of Ireland’s unemployment issues, I note that Ajai Chopra, our IMF Viceroy, says that Ireland will not be able to pop the champagne corks until after it gets its jobless crisis under control. Might I suggest that one way that the Irish government should not attempt to achieve this is by recycling privatisation proceeds into job creation efforts – you only have to look at Fás to see what happens when Irish politicians attempt to create employment. Reducing the tax and regulatory burden on businesses is the best way forward.
A couple of times this year I’ve been accused, not undeservedly (!), of being extremely bearish. To mitigate against the above economic doom, gloom and ka-boom (to use a line from an email I sent to my MBA classmates earlier this week), here’s a video that shows that not everything is bad, at least in Ireland.
Finally, looking ahead, it’s going to be a busy week for Irish corporate newsflow. The main highlights are First Derivatives’ H1 results (Tuesday), C&C’s H1 results (Wednesday) and Dragon Oil’s IMS (Thursday). If I can tear myself away from the books I’ll provide you with some “musings” on them.
Blogging has been non-existent of late as I headed to Cork for a few days both to avoid being disinherited (Mother’s Day!) and due to my guessing, correctly as it turned out, that the markets would be quiet before the expected ECB rate hike announcement.
So what have I learned the past while?
Firstly, I was aghast to read on Zero Hedge that the Federal Reserve has printed $2.5 trillion dollars to create 1,492,000 jobs from the recession trough. That’s $1.7m per job.
This article warns of the dangers in investing in penny stocks. If something appears too good to be true, it almost always is. I have never traded any stock that I’ve come across due to a recommendation from a ramper. A policy I’m not likely to change.
You can read about the world’s 10 strongest liquor brands here. Contrary to the stereotype only one was founded by an Irishman!
I’ve written before about how new media continues to gain market share from traditional media, and this statistic again illustrates the trend. How many Irish TV shows have a greater audience than Facebook on any given day in Ireland? Just one – The Late Late Toy Show.
(Disclaimer: I am a shareholder in Uniq plc). I’ve commented in the past about the need for consolidation among the UK food producers. Uniq, a company which recently completed a historic pension deficit-for-equity swap, announced that it has put itself up for sale. Potential suitors presumably include Ireland’s Greencore, given the product overlap between the two (hence plenty of synergies to squeeze out of a deal), Uniq’s strong relationship with M&S, a retailer that Greencore wants to get more exposure to, and Greencore is I imagine under pressure to cut a deal after being trumped by turkey mogul Ranjit Boparan in the battle to acquire Northern Foods.
I would classify my own investment style as being a mixture of contrarian and value, and the former side was very interested to hear of data compiled by Explorers of London that show that as of March 30th, the value of stocks on loan to short sellers was a paltry $273 bln, the lowest level in 5 yrs. Moreover, a survey by Investors Intelligence puts the Bulls at 57.3% (highest level since since mid-Dec 2010) and the Bears at 15.7% (the lowest level since Dec 2009). The difference of +41.6% is close to the 2007 high of +42.4%. Stats like that given the macro backdrop make me very nervous about market direction.
In my first blog post I noted the proposed $39bn AT&T-T Mobile USA deal. This has been followed by the $11bn acquisition of Vodafone’s stake in France’s SFR by Vivendi. Might these deals herald the start of a new wave of consolidation in the telecoms space?
Exchequer returns data for the first quarter of 2011 was released by the Department of Finance and it made for disappointing reading. While the spin put on it was that the numbers were “broadly in line“, the reality was that they were behind expectations. I was dismayed to read that total headline voted expenditure by the Irish government was +2% yoy in Q1 2011 – despite all of the hand-wringing about cutbacks – while even the political parties failed to lead by example, with State funding to them rising by a staggering 10% in Q1 relative to the same period last year. In addition, I note that Election 2011 cost the State some €13.9m.
Speaking of spendthrift governments, the US confirmed that it will hit its debt ceiling by May 16. Secretary Geithner’s letter to Congress is hair-raising stuff. The US’ current debt? $14.25trn. Another country with troubles, albeit well hidden ones, is China, where the Central Bank raised rates for the fourth time since October. They should have done that before 64m empty apartments were built there.
There was a touch of Groundhog Day about Tuesday, with HMV issuing yet another profit warning – its 3rd in 4 months, while oil, gold and silver all hit new highs. (Disclaimer: I am a shareholder in Ryanair plc) Oil has been messing around with a lot of brokers’ forecasts of late, and I was interested to see Goodbody slash its Ryanair forecasts, after factoring in $120 oil for the unhedged portion of its fuel requirements. That move sees FY13 EPS cut to 31.7c from 41.7c, while FY12 (where more of RYA’s needs are hedged) goes from 33.1c to 32.5c. Goodbody’s fair value on the stock has been cut by 6% to €4.70. Elsewhere within the sector British Airways raised fuel surcharges on return long-haul business class flights to up to £290, a 7 year high.
Those of you interested in gambling stocks might be interested in Davy’s observations from its recent sector conference.
The ECB is expected to raise interest rates in an hour or so, despite the well-documented pressures in Greece, Ireland and Portugal, which has become the third country to receive a bail-out. There’s a lot of confident talk about Spain dodging the need for a bailout, but I am unconvinced about that, given its horrific housing sector, Spain’s recent downgrading of its GDP forecasts and soaring unemployment.
Finally, Goodbody’s Dermot O’Leary has a great presentation from the Irish Debt Dynamics conference held yesterday in London. Amongst other things in it, here are some quotes from the European Commission, the IMF and the now Chancellor of the Exchequer from the good times to show how not even they saw the mess coming:
Ireland’s “budgetary position is sound & the budgetary strategy provides a good example of fiscal policies in compliance with SGP” – EC, 2006
Ireland’s “performance has been underpinned by outward-oriented policies, prudent fiscal policy, low taxes…” – IMF, 2007
Ireland is “a shining example of the art of the possible in long-term economic policymaking” – George Osborne, 2006
And we’re being advised by some of these people now?