Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘UTV Media

Market Musings 28/8/2012

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It has been a busy day on the results front in Ireland, particularly in the TMT sector.

 

To kick off, UTV Media, which has interests in the radio (local stations in the UK and Ireland, and the national talkSPORT station in the UK), television (the ‘Channel 3′ – ITV – franchise for Ulster) and new media (website design, marketing, broadband) segments, released its interim results this morning. This revealed a resilient performance in what are, clearly, challenging end-markets, with revenues and pre-tax profits climbing 4% and 3% respectively. The group continues to make impressive progress in terms of strengthening its financial position, cutting net debt by 21% over the past year to £50.0m. Across the group, UK radio revenues powered ahead, helped by the benefits of Euro 2012. Irish radio significantly outperformed, rising 4% in local currency terms, despite an estimated 10% fall in total Irish radio advertising in the first 6 months of 2012. The reason for this outperformance is that UTV’s Irish stations are all focused on the key urban markets on the Island of Ireland, which gives it a relatively more attractive proposition to offer to advertisers. On the television side, revenues and profits were down, with weak Irish advertising conditions to blame. With regard to the small new media business, margins were under pressure due to ‘competitive pricing’. In terms of the outlook, it looks like the rest of the year will see similar trends to the above, with outperformance on the radio side, underperformance in television and modest topline growth in new media. Not that investors should be too perturbed by this, as UTV is doing a decent enough job despite the challenging macro backdrop.

 

(Disclaimer: I am a shareholder in Datalex plc) I was pleased to see Datalex release very strong interim results today. Reflecting last year’s new contract wins (including Air China and SITA), revenues rose 18% to $15.7m. Reflecting the operating leverage inherent in Datalex’s model, nearly all of this  translated into profits – I note that in the first 6 months of 2012 Datalex generated gross profits of $2.8m, 82% of the total for the whole of 2011! This positive momentum should be sustained into 2013, with the likes of Indonesia’s Garuda and Fiji’s Air Pacific having gone live since the start of the year, while a number of other carriers including Delta are scheduled to go live later this year. On the balance sheet front, Datalex is guiding a 20%+ rise in cash reserves in 2012. Overall, these are excellent results, and continued good news on the new client wins front bodes well for the future. I’m not surprised to see the shares shoot higher in Dublin today.

 

(Disclaimer: I am a shareholder in Independent News & Media plc) INM completed the restructuring of its board, with the election of four new directors and the appointment of a new Chairman and Senior Independent Director. With this out of the way, hopefully the focus can move on to the more crucial issue of repairing the firm’s balance sheet, and on this front the Irish advertising trends noted by UTV must surely bode ill for INM.

 

Insurer FBD posted solid H1 results today. The numbers were in-line with expectations, while management is sticking to its FY guidance. Within the results it was interesting to see that FBD has reduced its exposure to government bonds by over 40% in the year to date – this is a sensible move given what I believe to be a bubble in government bonds in Europe – although its exposure to equities remains low, at just 4% of total underwriting investment assets.

 

United Drug announced another two acquisitionsDrug Safety Alliance (total consideration, including earn-outs, of $28m) and Synopia (total consideration, including earn-outs, of $12m). Both businesses will form part of United Drug’s Sales, Marketing & Medical division. These deals take the number of acquisitions the firm has made so far in 2012 to six (five operating businesses and one property acquisition), so bedding these down will presumably take up a lot of management’s time over the next while.

 

In the resource sector Petroceltic’s H1 release contained no material ‘new news’. Management is focused on successfully executing the merger with Melrose Resources.

 

And that’s pretty much all that’s caught my attention so far today. Tomorrow brings results from PTSB, Grafton, Paddy Power and Glanbia, which will no doubt provide much food for thought.

Written by Philip O'Sullivan

August 28, 2012 at 2:51 pm

Market Musings 27/7/2012

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Blogging has been extremely light as I’m in the final stages of an internship as part of my MBA studies. However, newsflow has been anything but light! So, this blog represents a catch-up on what has caught my eye whenever I’ve been able to find the time to track what’s been happening in the markets this week.

 

(Disclaimer: I am a shareholder in Allied Irish Banks plc and PTSB plc) There was a lot of news out of the Irish financials this week. AIB released its interim results this morning. Overall, AIB has made good progress on deleveraging and deposits, but more work is needed on margins and costs. To take those in turn, I was encouraged to see that the LDR has improved by 13 percentage points to 125% since the start of the year, helped by €3bn of deposit inflows and non-core loanbook disposals. However, the net interest margin has worsened to 1.24% (pre-ELG) from the 1.36% seen in H12011. Hence, it was no surprise to hear management guide that it will raise mortgage rates in the autumn. As things stand, AIB is currently loss-making before even taking provisions into account, and the group will have to address this through a combination of rate hikes and cost take-out measures. Elsewhere,  PTSB revealed further details on its restructuring plans, but given its limited new lending ability and shrinking presence in the market I can’t see it being anything other than a marginal player for quite some time to come.

 

In the energy sector Providence Resources released an exciting update in which it revealed that there may be up to 1.6bn barrels of oil at its Barryroe Field, offshore Cork. Obviously it’s early days yet with this discovery, but it’s a stock that merits taking a look at. Once I’ve completed my internship it’s on my list of stocks to look at in more detail. Elsewhere, its Irish peer Tullow Oil released H1 results that contained few surprises given the level of detail provided in its recent trading update.

 

(Disclaimer: I am a shareholder in Marston’s plc) UK pub group Marston’s released a solid trading update, which revealed a satisfactory performance despite the recent wet weather.

 

Sticking with food and beverage stocks, Glanbia announced the $60m acquisition of a US beverage firm, which looks a perfect fit for its nutrition operations. This is another example of Glanbia’s successful forward integration strategy, which looks well placed to deliver strong returns over time.

 

Another Irish firm on the M&A prowl was United Drug, which acquired a German headquartered contract sales outsourcing firm for €35m, which will fit well within its existing Sales, Marketing & Medical division. An EV/Sales multiple of 0.23x is undemanding for a firm like this, so it looks a good deal to me.

 

(Disclaimer: I am a shareholder in Ryanair plc) Low-cost carrier Easyjet upped its PBT guidance, despite euro weakness, to a range of 280-300m. Prior to that the consensus was £272m. I assume the read-through from this for Ryanair, which reports numbers on Monday, is positive given that the euro weakness is near-term bullish for it (it generates a third of revenues from the UK, while it hedges its fuel and related USD exposures).

 

In the construction space, UK builders merchant group Travis Perkins’ interim results revealed a slowing performance in Q2. Management doesn’t see growth returning until 2014, so it’s not a sector I see a pressing need to gain exposure to anytime soon.

 

(Disclaimer: I am a shareholder in France Telecom plc) There was a lot of news in the telecoms sector. Spain’s Telefonica followed the lead of KPN and cut its dividend. France Telecom released its interim results, in which the firm reiterated its full-year cashflow targets, which is somewhat reassuring. France Telecom is a stock I’ve been negative on for some time and which I am looking to exit in the near future due to its inflexible cost base, intense competitive pressures in its home market and my fear that it will cut its dividend.

 

In the media space UTV announced that it has broadened its partnership with the English Football Association to broadcast rights around the FA Cup, Charity Shield and selected England internationals.

 

Ireland’s Central Statistics Office released its latest data on Irish house prices, which provide few grounds for optimism. While a lot of the recent media commentary has focused on monthly moves, I prefer to look at prices on an annual basis, given that month-on-month moves can be distorted by the small number of transactions happening in the market at this time. The latest data show that Irish house prices declined by 14.4% year-on-year in June 2012. This is a fall of a greater magnitude than what we saw in June 2011 (-12.9% yoy) and June 2010 (-12.4% yoy). The picture in Dublin is even worse (prices -16.4% yoy in June 2012) which is particularly concerning given that the capital will lead the eventual recovery in Irish house prices (due to much tighter supply and it being the economic heart of the country). Overall, I reaffirm my view from last month, namely that I don’t see any obvious catalyst for a sustained improvement in Irish property prices in the near term.

Market Musings 10/7/2012

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The past few days have been pretty quiet on the newsflow front, which has afforded me the opportunity to work on some financial models. I hope to publish a detailed case study on Smurfit Kappa Group later on this week, so those of you who follow the packaging sector might want to keep an eye out for that.

 

(Disclaimer: I am a shareholder in Abbey plc) This morning housebuilder Abbey released its FY12 results. While the tone was relatively subdued (it should be noted management has form for conservatism) the numbers themselves were pretty good. The firm completed 310 sales in the 12 months to the end of April, +2% year-on-year. Average selling prices were +4% across the group, as a 14% decline in Ireland, which now only represents circa 8% of turnover, was easily offset by a 7% increase in the UK, which accounts for circa 85% of revenue. The balance of Abbey’s activities are in the Czech Republic. Despite shelling out over €20m on share buybacks and landbank purchases, the group finished the year with net cash of €70.1m (56% of the current market cap), -€8.8m year-on-year. Overall, there’s nothing really in the statement for me to alter my narrative on the company, which is: Abbey is an exceptionally well run company, that is overwhelmingly exposed to the attractive South-East England market, with a very strong balance sheet, trading at an unwarranted 25% discount to its NAV. It’s cheap. I like it and would consider adding to my holding.

 

Since my last update, Aer Lingus says that it’s considering launching domestic flights in Britain. This serves to remind me of the value of the carrier’s Heathrow slots (it has the third highest number of take-off and landing slots and London’s busiest airport), and also of the opportunity it has to maximise the value of these through careful route management. If it secures the Heathrow-Edinburgh route, this will not be the first time Aer Lingus has operated routes originating and terminating outside of Ireland – it previously had a base at Gatwick Airport, while it currently flies a Washington DC – Madrid route on behalf of United Continental.

 

(Disclaimer: I am a shareholder in Independent News & Media) In the media space, following its recent shuttering of the Offaly Express, Johnston Press closed another Irish local title, Donegal on Sunday. As I’ve noted before, these unfortunate closures will by default result in market share gains for the likes of Independent News & Media, which publishes 13 local titles in Ireland.

 

In the blogosphere, John Kingham wrote a detailed case study on UTV Media, which he successfully traded in and out of. I covered the stock back in my analyst days (I feature in John’s case study!) and am quite impressed by the progress the company has made in terms of repairing its balance sheet. If only certain other Irish media groups were as successful when it comes to strengthening their financial position!

 

Speaking of case studies on highly indebted companies, Lewis took a peek at Premier Foods and rightly (in my view) concluded that the debt structure was unlikely to prove benign to equity investors.

Written by Philip O'Sullivan

July 10, 2012 at 8:20 am

Market Musings 27/6/2012

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The big news from corporate Ireland this morning is C&C’s Q1 interim management statement. In its first projection for the current financial year, the company sees FY operating profits of €112-118m (last year: €111m). Its core cider brands struggled in Q1, due to poor weather and tough comparatives, but other parts of its portfolio are performing strongly. Regular readers of this blog will recall that a few months ago I wrote that Tennent’s lager appeared to be making headway in pubs here, and this morning C&C revealed a near-50% increase in Tennent’s sales in Ireland as the brand is now available in 1,200 pubs (16% of the total). Overall, this is a pretty much as-expected statement from C&C, but at this early stage of the year it’s hard to make a definitive call on the full-year outlook (who knows, we could have an excellent July and August on the weather front!). On a more fundamental view, the group has an extremely strong balance sheet (net cash was €68m at the end of its last financial year) and has been doing a good job of managing its portfolio of brands in challenging consumer conditions of late. It’s a stock I like.

 

Elsewhere in the food sector, Glanbia confirmed what’s already in the public domain about the potential restructuring of its Dairy Ingredients Ireland operation, namely that it’s plotting to establish a jv with its majority shareholder, the Glanbia Co-op, to manage this business, which is set to experience a dramatic increase in volumes once EU milk quotas are lifted from 2015. This restructuring would be a positive move for all parties concerned, in that it would free up additional capital for the plc to support its push into the high-growth, high-margin ingredients space while giving the JV the freedom to pursue a strategy that could feasibly create a northern hemisphere version of New Zealand powerhouse Fonterra.

 

(Disclaimer: I am a shareholder in Independent News & Media plc) In the media space, we saw a battle for control of Australia’s Fairfax media group, which could have consequences for INM’s Australasian associate APN News & Media. Elsewhere, UTV Media lost out to Global Radio in the bidding war for GMG’s radio portfolio. However, as I said a few days ago, this has given rise to serious competition concerns, which could potentially lead to other acquisition opportunities for UTV Media et al.

 

In the healthcare space, United Drug made a £13m bolt-on acquisition of a UK medical communications company, which will fit perfectly within its Sales, Marketing & Medical division. This transaction is obviously small from a group context, but nonetheless helps to further diversify United Drug’s revenue streams.

 

(Disclaimer: I am a shareholder in BP plc) Oil behemoth BP did some further portfolio management in recent days, offloading assets in Wyoming and the North Sea for a combined $1.3bn. Throw in the $20-30bn it is likely to receive from a successful sale of its economic interest in TNK-BP and the firm will have a significant war chest to make further acquisitions (or fund a chunky special dividend) with.

 

(Disclaimer: I am a shareholder in RBS plc) The worst of the IT problems that have dogged RBS in recent days appear to be behind the group, and attention is now switching to the fallout. Reuters spoke of a £100m+ bill, but this may prove extraordinarily ambitious, with reports of people being kept imprisoned due to bail money not being processed properly and patients’ medical treatment being imperiled coming to light. Doubtless RBS will be writing a lot of cheques to assuage public anger following this foul-up.

 

There was a lot of excitement around Irish house prices since my last blog post, with the release of official data that show Dublin residential property prices have advanced (marginally) on a month-on-month basis for each of the past three months (national prices were +0.2% mom in May, -15.3% yoy). Despite this recent improvement, residential prices in Dublin, which is going to be the part of the country that leads the market, are still -17.5% on an annual basis (and 57% below the peak) so it seems a little premature to bring out the champagne bottles. The ongoing difficulties in the domestic economy are likely to hold back property prices for some time to come yet, while this December’s budget should bring in further tax increases, not least given that the government has repeatedly demonstrated a lack of willingness to right-size public spending, which will further limit peoples’ ability to service mortgages. Add a lack of mortgage credit availability into the mix and I don’t see any obvious catalyst for a sustained improvement in Irish property prices in the near term.

 

In the blogosphere, Lewis wrote about Dart Group, perennial favourite of the value investing blogosphere (albeit not one for me – given that I already have exposure to some of its competitors e.g. Ryanair and Total Produce).

Written by Philip O'Sullivan

June 27, 2012 at 8:10 am

Market Musings 13/6/2012

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Since my last update Spain looks like it may shortly be joined by Cyprus in asking for a bailout, making it two more EU countries that have needed external assistance since Ireland voted yes to the “Stability” Treaty – I hope my country isn’t starting to become a contra-indicator!

 

(Disclaimer: I am a shareholder in Tesco plc) Tesco released its Q1 interim management statement earlier this week. While there was a lot of focus on the performance of individual markets, the bottom line is that Tesco is performing in line with market expectations and the outlook for the full-year remains unchanged. Across the group I was pleased to see an improvement in its Irish sales, which bodes well for the domestic economy here, while the slowdown in Tesco’s Chinese sales growth mirrors the well documented (not least on this blog) pressures in that market. In its key UK market, while conditions remain ‘challenging’, it was comforting to see management describe the performance there as being ‘as expected’. Overall, there’s little within the statement to alter my view on Tesco – it’s clearly going through a rough patch, but trading on less than 9x forward earnings and yielding 5%, and with a relatively strong balance sheet (net debt/EBITDAR was 2.84x at end-FY11) I see limited downside risk to the shares from here. Mind you, some investors have less patience than I, with some giving the CEO a mere 6 months to turn the UK performance around.

 

(Disclaimer: I am a shareholder in Bank of Ireland plc) We saw a positive update from Bank of Ireland earlier this morning, with the group announcing that it has sold another loan portfolio. To date the Bank is 97% of the way through its €10bn programme of divestments, and it is important to note that these sales have been completed within the PCAR base case assumptions. My recent case study on Bank of Ireland is here.

 

Structural steel firm Severfield-Rowen dropped a bit of a clanger earlier this week, warning on profits due to cost over-runs on two projects. It is worth noting that, those two mishaps aside, the group is sticking to guidance of a: “strong order book, anticipated full capacity utilisation and good project mix in both the UK and India”. As Severfield-Rowen is a leading indicator for the commercial real estate sector, this update is somewhat reassuring from a macro perspective.

 

(Disclaimer: I am a shareholder in France Telecom plc)  I was interested to read that France Telecom is preparing to exercise its call option and buy out the other shareholders in video sharing site Dailymotion. Assuming I’m reading the Alexa data correctly, it’s the 99th most visited site in the world, so hopefully FTE will be able to monetise this asset to a level that more than warrants this investment.

 

(Disclaimer: I am a shareholder in Independent News & Media plc) In a further twist to the ongoing INM saga, the company has lost yet another non-executive director, with David Reid-Scott, who only joined the board in December, standing down. INM’s board now has only four directors on it – Denis O’Brien’s associates Paul Connolly and Lucy Gaffney, along with Frank Murray and CEO Vincent Crowley.

 

In other media sector news, UTV is one of three parties linked with possible bids for GMG (Guardian Media Group) Radio. A price of £40-45m has been suggested for the assets, which is ballpark 1x sales. According to the RAJAR figures provided on the GMG website, its two brands, Real and Smooth had 46.4m listening hours in Q1 2012, which is a roughly 4% share of all radio, but of course it’s important to note that the share of commercial radio (BBC doesn’t carry advertising) would be around 10%. This compares with commercial radio shares of circa 8% for UTV and 37% for Global. I’m no expert on competition issues around media ownership in the UK, but I’m guessing that UTV would find it significantly easier to get clearance for a takeover of GMG Radio than Global would. UTV, which has a net debt / EBITDA multiple of only 1.9x (at end-FY11 the net debt and EBITDA figures were £54.7m and £28.3m respectively) would have no difficulty in funding a takeover of GMG Radio.

 

In the energy sector, the wave of M&A activity we’ve seen since the start of 2012 has continued, with Cairn Energy agreeing a $644m takeover of Nautical Petroleum, which is focused on the North Sea. Indeed, that region is a particular area of focus, so whenever I have the time I must put together a comprehensive ‘who’s who’ list of players in that area.

 

(Disclaimer: I am a shareholder in Datalex plc) We saw a lot of news from the airline sector. EasyJet founder Stelios has teamed up with Lonrho to develop an African LCC, FastJet. Elsewhere, Bloomberg ran an interesting article about how traditional airline booking engine providers such as Sabre and Amadeus are seen by some as: “obsolete middlemen who add costs”.  Sentiments like this could open up opportunities for nimble operators such as Irish listed Datalex plc to win over more customers to add to an already impressive client list.

 

Argentina’s banks have lost one-third of their US dollar deposits as savers take flight. This is a further consequence of the crazy economic policies being implemented by President Fernández de Kirchner, which I’ve been writing about for some time. One of the main beneficiaries of this is Uruguay – when I traveled to Montevideo last year I was struck by just how many international banks had operations in that town – and I was not surprised to read of rising concerns in Argentina’s political elite about this. Is it any wonder, given the political backdrop, that Argentine households with at least $100,000 in assets hold 74% of their wealth offshore, according to estimates by the Boston Consulting Group. And to think that some people in Ireland think that we should be emulating Argentina’s economic policies!

 

It’s not just Ireland that has seen these sort of trends – median US household net worth declined by 38% between 2007 and 2010.

 

Staying with macro news, James McKeigue, who writes for Moneyweek, wrote an interesting piece (which mirrors more than a few of the readings I did for the supply chain management module of my MBA) some time ago about how more Western firms are reshoring operations from China. He flagged a similar article in The Atlantic earlier this week.

 

Closer to home, ignoring the 230,000 vacant housing units that are in Ireland, local authorities in County Cork are planning a 5,000 home new town. Given the enormous oversupply of homes in Ireland at this time, you’d wonder how such plans would even make it on to the drawing board, much less be given serious consideration.

 

In the blogosphere, Lewis took a look at Hornby, beloved of model railway enthusiasts everywhere.

Market Musings 18/5/2012

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We’ve had a Tsunami of company updates since my last blog, so here’s a sector-by-sector wrap of what’s been going on.

 

C&C posted profits that were in line with guidance. The full-year dividend was raised by a chunky 24%, taking the payout ratio to 30%. On the conference call that followed the results management guided that it will raise this to 40% over time. C&C’s balance sheet is in great shape, with net cash hitting €68m last year. This gives the group considerable scope to launch share buy-backs, pay a special dividend or buy new brands – or in other words, it has a ‘nice problem’ of having to worry about what to do with its excess cash. C&C is a stock I’ve held in the past, but I’d want to do a bit more work on it before seeing if I’ve any room for it in the portfolio.

 

(Disclaimer: I am a shareholder in Marston’s plc) Elsewhere in the beverage space, Marston’s posted excellent interim results yesterday. Group revenues were +7.6%, underlying PBT +14.7% and the H1 dividend was raised 5%. All divisions (managed houses, tenanted and franchised and brewing) reported a rise in sales and underlying profits. The group is delivering on its ‘F Plan’ (which it defines as food, families, females and forty/fifty somethings) targets, with an 11% rise in meals served. I’m a very happy holder of the stock.

 

In the energy space, Tullow Oil issued a bullish interim management statement, describing its year-to-date performance as “excellent”. Its year-to-date financials are in-line with expectations, but as ever the main excitement around the stock is based around its exploration activity, which has been yielding encouraging results from Kenya in particular of late.

 

Staying with the oil sector, my old pals Kentz posted a solid trading update this morning, saying the full-year performance would be “marginally ahead of expectations“. Its pipeline is in good shape, with the order backlog standing at $2.46bn at the end of April, up from $2.40bn at end-December.

 

(Disclaimer: I am a shareholder in CRH plc) CRH received net proceeds of €564.5m from the sale of its stake in Portuguese cement firm  Secil. As mentioned before, these funds will provide the group with considerably enhanced financial flexibility to expand through M&A over the coming years.

 

In the retail sector, French Connection was the subject of a lot of attention this week. Richard Beddard did an excellent series of posts on it, summarised here, to which I replied: “Leases and the brand (seems very stale to me) are the big worries I have”.  Those worries didn’t quite go far enough, with the firm posting a profit warning yesterday.

 

(Disclaimer: I am a shareholder in Independent News & Media plc) We got a lot of news from the media space. UTV Media said that its year to date trading is in line with its expectations. Within the statement it was encouraging to see its Irish radio revenues move into positive territory. Elsewhere, INM said today that “advertising conditions remain challenging and erratic. Visibility remains short and susceptible to influence by macro-economic factors”. It added that net debt currently stands at circa €420m (end-2011: €426.8m). Not a lot to get enthusiastic about, especially on the net debt front, but of course much of the focus on INM is on recent moves in its share register and the intentions of new CEO Vincent Crowley.

 

In the betting sector, Paddy Power released a very strong trading update, with net revenue growth in the year to date accelerating to 28% from the 17% booked last year. The group is firing on all cylinders and remains the quality play in the betting space.

 

(Disclaimer: I am a shareholder in Total Produce plc) Irish headquartered food group Glanbia sold its Yoplait franchise back to the brand owner for $18m in cash. Its fellow Irish listed food stock Total Produce reaffirmed its full-year earnings target in a brief update issued earlier today.

 

(Disclaimer: I am a shareholder in Irish Continental Group plc and Datalex plc) In the transport space, ICG’s IMS revealed a weaker performance from the freight side, while passengers were marginally higher relative to year-earlier levels. This is the seasonally quiet period of the year so there isn’t a lot of read-through from today’s statement. Elsewhere, travel software firm Datalex issued an update this morning in which it said its performance is in line with its forecasts.

 

In the financial space, IFG posted a solid trading update. Since it agreed to sell its international business the main interest here is its UK and Irish operations. On this front, management says the UK is registering a “robust” performance, while Ireland is “performing well”. The company hints at the possibility of a special dividend post the completion of the sale of the international unit, so I’ll be watching that closely over the coming months.

 

(Disclaimer: I am an indirect shareholder in Facebook). To finish up with a word on the Facebook IPO, an investment fund I advise went long some Facebook in its IPO today at $40.10. This is very much a short-term trade around its IPO, given that Facebook is trading on 26x historic sales and 107x trailing earnings. Put another way, with a valuation of over $100 per Facebook user, I wouldn’t click the “like” button if someone suggested it as a long-term holding.

Market Musings 10/5/2012

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We’ve seen a deluge of trading updates in the past 24 hours or so. Let’s run through what new insights they’ve provided us with.

 

In the construction sector, Kingspan released a trading update today. The group has made a solid start to 2012, posting an 8% rise in sales in the first four months of the year, “of which Mainland Europe was up 9%, UK up 2% and North America up 10%”. Despite this impressive performance, I note that management caution that: “in general, the year opened with relatively more optimism regarding potential activity levels in some construction markets. This dissipated somewhat as we progressed through the first quarter with sentiment weaker now than at the beginning of the year”. As I’ve stated before, Kingspan has undoubted ‘structural growth’ qualities that set it apart from most construction related stocks, but I don’t see anything in this statement to warrant Kingspan shares pushing significantly ahead of their 13.0x forward earnings multiple in the short term.

 

Elsewhere, Grafton issued a trading statement this morning which revealed diverging trends across its operations. Its UK business appears to be gaining market share, but Irish conditions remain very challenging. It was interesting to see, despite many of its competitors having exited the market, that Grafton’s Irish retail (Woodie’s DIY, Atlantic Homecare) and merchanting (Heitons, Chadwicks) sales were -16% and -9% respectively in the first four months of 2012. This bodes ill for the state of the domestic economy.

 

Glanbia released a trading update yesterday that contained few surprises relative to my expectations. While management is sticking to its full-year guidance, the impact of tough comparatives is shown by a forecast of flat earnings in H1 relative to year-earlier levels. Within the different business areas, nutrition continues to perform strongly, posting a 9% jump in revenue in Q1 2012, but Dairy Ireland’s revenues fell 5% in the same period. Overall, this statement reinforces my view that I was right to ‘step out’ of Glanbia for a while.

 

In other food sector news, Fyffes upgraded its FY EBITA target to €25-30m from the previous €22-27m. This is a great performance by Fyffes in light of the headwind of high fuel prices in particular.

 

UTV Media announced that it has inked a new 5 year bank facility today, which to me reflects the very impressive progress the group has made in terms of rebuilding its balance sheet in recent years.

 

(Disclaimer: I am a shareholder in Trinity Mirror plc) I was delighted by Trinity Mirror’s interim management statement today. While advertising conditions remain under pressure, cash generation remains very strong, as evidenced by the £24m (11%) improvement in its net debt in the year to date. On top of that, the pension deficit has also seen a £54m positive movement since the end of 2011. The combined improvement in Trinity Mirror’s long-term liabilities is equivalent to 100% of its closing market capitalisation from yesterday. This also shows that my narrative around the company appears to be playing out.

 

(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) Speaking of narratives, I was pleased to learn of another containerboard mill closure in Europe, which is supportive for pricing in an industry where Smurfit Kappa is king.

 

In the retail space, Clinton Cards went into administration yesterday. This is bad news for its employees, and for retail REITs – Clinton’s over 700 stores are to be found in most large shopping centres in the UK and Ireland.

 

In the blogosphere, Lewis came up with an interesting way of gauging fashion ‘trends’ – might this offer new insights into trading retail stocks?

Written by Philip O'Sullivan

May 10, 2012 at 10:05 am

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