Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 30/03/11

with 3 comments

(Disclaimer: I am a shareholder in Irish Life & Permanent plc and Smurfit Kappa Group plc)

This was always going to be a week in which the Irish financials would be in focus, given that the results of the stress tests will be released after the market close tomorrow. Given the dismal record of the previous analyses a cynic would be forgiven for asking whether or not the authorities should delay them until the next day – April Fools’ Day. In any event, we got a rude awakening this morning with the news that Irish Life & Permanent had requested that its shares be suspended until Friday. Given the range of estimates out there about its capital requirements (€1-3bn), coupled with news about possible asset disposals by the group, this suspension didn’t come as a massive surprise. However, as events both here (the ban on short-selling financial stocks in September 2008) and overseas (the recent traumatic re-opening of Egypt’s stock exchange) have shown, these efforts to restrict trading often do little to reduce volatility in the longer-term. I was disappointed to learn that attempts to sell EBS to the Cardinal led consortium had failed – as indeed were the members of the consortium (WL Ross, Cardinal, Carlyle), who Bloomberg quote as expressing: “extreme disappointment at the outcome of this extended & extensive sales process”. I note speculation that IL&P’s Permanent TSB unit and the EBS may now be cobbled together by the government, which at the very least would help cut some of the costs of the State’s new adventures in high-finance. Speaking of the stress tests, the FT produced this video ahead of them, check it out.

There was more positive corporate news elsewhere in Ireland, with Tullow announcing that it had signed sale and purchase agreements with Total and CNOOC which is another important milestone towards the full development of its resource in Uganda. IFG issued solid 2010 numbers this morning, revealing EPS of 18.8c, having previously guided a range of 18-20c. IFG’s net debt was only €14.8m (circa 0.5x EBITDA), so its balance sheet looks to be in great shape. The company says that it is “looking to the future with confidence”.

In terms of what the brokers were saying about some of our stocks today, Kepler announced that it sees more European pharma M&A post Valeant’s bid for Cephalon. It’s top M&A pick is Actelion, and it also sees Orion, Shire, Basilea and Irish listed Elan as M&A targets. Goodbody had a note out on Grafton, in which it reiterated its Buy rating and noted opportunities for the group to improve its UK performance. Goodbody’s price target on Grafton is 490c (45% upside to the previous day’s close). Separately Goodbody also upgraded its NAV valuation on Dragon Oil by 7% to 685p. Morgan Stanley initiated on Smurfit Kappa Group today with an “outperform” rating, saying that the Irish-headquartered European packaging giant is its top pick in the sector. Shares were +5.4%.

Turning to the UK, I was taken aback by this article about retailer GAME, which suggests that it is not playing by the Queensberry Rules. I was struck by the contrast between the UK and Irish operations of retailer Domino’s Pizza, which today revealed ytd like-for-like sales that were +5.5% in the UK, but -10.5% in Ireland.

Bloomberg had a good article about the pick-up in global M&A activity today, but those of you who bought the March edition of Business & Finance would have already seen my take on this.

The incomparable Zero Hedge reported that the IMF had cut growth forecasts for the USA and Japan, while hiking them for the EU. As I noted yesterday, I fear for the consequences of ECB rate hikes on peripheral European economies, not least our own.

Most interesting statistic I saw today? US e-book sales were up 116% yoy in January, while print sales (ex-education, ex-religion) were -19%. The words “structural” and “decline” come to mind.

There was also some unintended hilarity coming out of Brussels today. Bloomberg were covering a press conference hosted by EU spokesman Amadeu Altafaj and it quoted him as saying the following gems:

*EU SAYS SITUATION FOR GREECE `IS SOUND’

*EU SAYS GREECE HAS SOME `HOLES’ TO FILL IN BUDGET

*EU SEES `SOME DOUBTS’ ON FUNCTIONING OF CREDIT RATING AGENCIES

I’ll leave it up to you to make what you will of all that.

Finally, as banded offers go, this one is pretty original isn’t it?

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Written by Philip O'Sullivan

March 30, 2011 at 6:24 pm

3 Responses

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  1. I shall be following your musings here Philip – not sure abut your compatriots on the site, ones blatant link to the property market does not instil confidence in motives, but as an ex college classmate, will take interest in your comments.

    Damian.

    Damian Walsh

    March 31, 2011 at 11:15 am


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