Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 30/6/11

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It’s been an interesting day in terms of Irish corporate newsflow, with updates from Glanbia and Prime Active Capital, along with some interesting broker commentary on Kerry Group and Bank of Ireland.


(Disclaimer: I’m a shareholder in Glanbia plc). Glanbia issued a solid trading update this morning. Management reiterated 2011 full year adjusted EPS guidance of 11-13% growth, on a constant currency basis. I’m a fan of this group, for reasons I’ve gone into before.


Staying with the food sector, there was a lot of follow-through to Kerry’s investor day from the brokers. Davy’s Cathal Kenny had a good summary here, while the incomparable Joe Gill in Bloxham was on vintage form: “If you allow for cashflows to nuke debt…“. However, it was a piece by Goodbody analyst Liam Igoe that really caught my eye. Igoe, who has followed the stock for 20 years and knows it inside-out, offered some interesting perspectives on the group following its investor day yesterday. He believes it can deliver 12% p.a. organic growth into the medium term, ahead of the 10% it guided yesterday, helped by ongoing internal re-organisation measures. He reckons acquisitions can boost this by a further 5% so average annual medium term growth of up to 17%.  Taking the above into account, by my own calculations, using 2011 as the base line and growing EPS by 17% per annum means that EPS will rise by ~155% between now and the end of 2017. That would imply that the group is capable of doing €5.40 of EPS in 2017, which puts it on a 2017 PE of 5.3x. Assuming that a global nutritionals behemoth like Kerry should trade on 15x earnings, that implies that by 2017 we could realistically imagine a share price of up to €80/share by then versus the €28.45 it was trading at earlier this afternoon.


Prime Active Capital issued its results this morning. It’s not a company that I’m particularly keen on due to (i) its small size; (ii) exposure to consumers what it describes as “the Georgia/Alabama and Pittsburgh /Ohio regions” of the US; (iii) poor cash generation – operating cash flow was negative €19k; and (iv) foreign currency risk – it reports in euro and its main operations and investments are in the US and UK. What I did find interesting about the statement was Chairman Peter Lynch’s dry observation about the firm’s main market at this time: “The USA has a fragile deficit economy sustained by government spending vastly in excess of its income. While the recession and this cycle continue customer confidence is easily shaken and this has immediate repercussions into the retail environment in which we operate. This economic context also puts pressure on volumes, margins and the credit environment“.


The preliminary Irish census data were released today. One thing that caught my eye was this chart, which showed that 9 of the 10 regions that experienced the largest increase in their housing stock between 2006 and 2011 were rural ones. Best of luck to NAMA with trying to sort ghost estates in those areas out!


Credit Suisse had a detailed note on Bank of Ireland out today. I was interested to read its estimate that at the end of June the percentage of stock held by retail investors was 60%, from 31% at end-2010. Will these people follow their money in the rights issue?


Turning to Irish political matters, I was astonished to see Fianna Fáil TD Michael McGrath condemn bonuses paid to NTMA workers on the news last night. These bonuses were paid in respect of 2010 – when his party was in government. Just how stupid does this guy think the average Irish voter is?


Written by Philip O'Sullivan

June 30, 2011 at 3:52 pm

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