Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Tata

Market Musings 18/2/2012

with 2 comments

As has been the norm so far this month we’ve seen a lot of newsflow in recent days from right across the market. Let’s cover what’s been happening on a sector-by-sector basis.

 

(Disclaimer: I am a shareholder in France Telecom plc) In the telecoms space, I was interested to read that Deutsche Telekom is considering exiting its Everything Everywhere jv with France Telecom in the UK. It will be interesting to see how the latter responds, given that France Telecom has been exiting operations in Europe of late, selling its Austrian and Swiss businesses. Bernstein reckons that it is likely to IPO Everything Everywhere, which would be my preferred choice – France Telecom needs to slash its vast net debt (€30.3bn at the end of H1 2011) and this, along with the proceeds of the recent disposals, could put a chunky dent into it. With the French state, France Telecom’s biggest shareholder, losing its AAA rating from S&P earlier this year and Moody’s threatening to follow suit, I think heavily indebted corporates in that market are going to come under increasing pressure unless they can get their balance sheets in order. Against that I note that FTE is considering spending $2bn to buy out its Egyptian partner in that market, but the costs of that potential deal are significantly outweighed by the disposal proceeds outlined above.

 

In the construction sector, I was interested to read that the company that bought out Wolseley’s assets in the Irish market has been placed into examinership. While time will tell what the outcome of that process is, any closures would likely benefit Grafton, which has 67 merchanting outlets and 49 DIY retailing outlets in Ireland. Elsewhere in the sector Valuhunter did up a stonking blog on housebuilder Bellway in which he makes a very interesting observation – the UK benefits cap may lead to some internal migration as people move from the more expensive south-east of England to other regions. I am perplexed to read hand-wringing articles on the benefits cap such as this one – surely it is unreasonable to expect taxpayers to pay for people to live in the most expensive areas?

 

(Disclaimer: I am a shareholder in Total Produce plc) Switching to food companies, I was interested to read Indian media reports (this doesn’t appear to have been picked up by either the Irish media or any of the domestic brokers here yet) that Tata has ‘dissolved’ its joint venture with Total Produce. This is disappointing, as there’s no denying that the jv offered the greatest organic growth potential of all of Total Produce’s units. However, we have to frame that disappointment in the context that it was only a very small part of Total Produce’s business – I estimate only 1 or 2% of turnover.

 

(Disclaimer: I am a shareholder in PetroNeft and an indirect shareholder in Dragon Oil) In the energy sector, PetroNeft issued a ghastly trading update, in which it said production has slipped to 2.3kbopd versus 3kbopd at end-2011. This is eerily reminiscent of the technical problems that dogged the stock throughout 2011, and hence it was no surprise to see the share price close down nearly 40% yesterday. Sentiment will not be helped by an RNS posted after the market close by JP Morgan, which said that it has followed up its recent share sale by offloading a further 5m shares. JP Morgan has 6.8% of PetroNeft’s shares remaining, and were it to run its stake down to zero that would mean the market will have to digest about 8x the ADV. I can’t see a queue of buyers for that at the moment. Elsewhere, Dragon Oil said that it is considering making a bid for Bowleven. Contrarian Investor UK welcomes the return of M&A within the sector.

 

In the recruitment space, Harvey Nash issued a strong trading update. It’s one that I sold out of early last year – in hindsight, with very good timing – but I have been keeping an eye on it because I like its conservatism, diversification and excellent management team. While there is no denying that it’s cheap – it trades on a single digit PE and yields around 4.5%I suspect there will come a better time to buy Harvey Nash later this year – EPS momentum is set to fall off a cliff from the +16% in the 12 months to end-January 2012 to +4% in the current financial year, before accelerating once again to +34% in the 12 months to end-January 2014.

 

(Disclaimer: I am a shareholder in Allied Irish Banks plc, Bank of Ireland plc and Irish Life & Permanent plc) I was interested to read that IBRC, the bad bank formerly known as Anglo Irish Bank, is “anxious” to take on the tracker mortgages that are causing so much hurt for AIB and IL&P. Bank of Ireland reports results on Monday that will hopefully give a lot of clues about the dynamics within the Irish market at this time. The key things to watch out for in BKIR’s results are pre-provision profits (most analysts expect €500m), deposit trends, net interest margins, progress on deleveraging and impairment guidance.

 

(Disclaimer: I am a shareholder in Independent News & Media) I recently did up a case study on Independent News & Media, in which I mentioned the problem of imploding newspaper circulations. I was interested to read that INM has just de-registered 12 of its regional titles from the industry’s official circulation auditor, ABC. I’m sure that there’s no correlation between the two!

 

(Disclaimer: I am a shareholder in Datong plc) I was interested to read a piece in Growth Company about a stock I hadn’t come across before – PSG Solutions. PSG is clearly a microcap, with a market cap of only £26m, but I was interested to learn that it has a unit called Audiotel that specialises in technical surveillance countermeasures. I wonder if it would be a good fit with Datong, whose surveillance capabilities are well documented. Partnering the two could give it a nice breadth of offerings to security agencies. If anyone has a view on this, why not post a comment below.

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