Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 7/7/11

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It’s been a busy couple of days, both privately and on the markets. A lot of my time has been taken up with assisting in a flat clearance, which gave me a brief glimpse into what life as a rock star must be like as I watched sofas fly off a 3rd storey balcony!


The Irish government released the latest Exchequer Returns, covering the period to the end of June. All major headings of tax revenue in Ireland were down yoy in H1 except for income tax, customs and excise receipts, which tells its own story. On the spending side, total voted expenditure was +2% yoy in the first half of the year, while of the 15 diffferent “vote groups”, 6 reported an increase in spending in H111 relative to H110. This, we’re told, is “austerity”. The Exchequer deficit was €10,828,463,000 in H1, or €2,364 for every man, woman and child in the country. This is clearly an unsustainable position, and one that will require cutbacks far in excess of what the government is currently planning if we are to stabilise the public finances. Constantin Gurdgiev has a further analysis of the data here.


There was a lot of Irish corporate news as well. Tullow Oil revealed that its Ghanaian operations are now producing 80k barrels of oil per day, up from 70k in May, and this will rise to 120k by August. Management also reiterated its FY capex goals.


(Disclaimer: I’m a shareholder in CRH plc) CRH issued a development update for H1 yesterday, in which it revealed €0.2bn of spending in the first 6 months of the year on 21 acquisition and investment initiatives. CRH has also agreed to buy VVM which will take ytd spend to circa €0.3bn. While the domestic brokers seemed broadly happy with this, I had hoped that the company would have done more on the development front, especially given its sector-leading balance sheet.


(Disclaimer: I’m a shareholder in PetroNeft plc) PetroNeft has been a drag on my portfolio this year, but its shares rallied strongly on the back of its latest operations update, in which it revealed that it has encountered 18.5m of net pay (its thickest ever) at the Lineynoye 206 well. This bodes well for its revised development strategy, but prudence tells me to wait for further positive results before increasing my exposure to this stock.


(Disclaimer: I’m a shareholder in Total Produce plc) I was interested to see that fruit distributor Capespan, in which Ireland’ s Total Produce has a 12% stake, has received a takeover approach. Bloxham’s Joe Gill has a good piece on it, and I note in particular the big PE premium that the bid for Capespan (13x) is pitched at relative to Total Produce’s rating (5.3x). I like Total Produce’s business model – it’s a very stable and defensive company, with good cashflow generation (operating cashflow/underlying EBITDA was 83% in 2010) and a strong balance sheet (net debt/EBITDA 0.8x at the end of 2010). It’s also Europe’s biggest fruit and vegetable distributor, moving over a quarter of a billion cases of fresh produce from 88 locations each year, but given how fragmented the market is (its market share is a mere 5%) there are plenty of opportunities for it to pick up rival companies and squeeze earnings-enhancing synergies out of them. Hopefully the Capespan valuation might attract some buying interest in Total Produce!


On the international equities side, I was interested to see a profit warning from CSM, the world’s largest bakery products group, which was due to rising agri-input prices.  This is a topic I’ve written about for Business & Finance before, and I suspect that the read-across from CSM is negative for Ireland’s Aryzta. Some UK oil names got a boost from a welcome u-turn on North Sea taxes from the British government, which had previously appeared hell-bent on endangering the country’s energy security and countless numbers of jobs by making the North Sea uneconomic for many oil producers. Contrarian Investor, one of the main UK share blogs I follow, had a good piece on this here. (Disclaimer: I’m a shareholder in Trinity Mirror plc) I had mixed emotions over one of my holdings this week. The value of my shareholding in Trinity Mirror increased by over 16% yesterday after a slew of firms stated that they are boycotting the News of the World following revelations about phone tapping. This is positive news for the NotW’s competitor The Sunday Mirror, but I would prefer if the background to this share price rise wasn’t so ghastly. The conduct of certain employees of the NotW represents a new low for tabloid “journalism”.


Yet another worrying sign about China? – the Singapore SWF has offloaded its stakes in two listed Chinese banks.


I was astonished to learn that an Irish MEP, Jim Higgins, thinks that Ireland should introduce a national system of ID cards. Apart from the fact that this would pose a grave threat to civil liberties, or that such experiments have failed elsewhere in the past, the cost of such a scheme would be ruinously expensive at a time when Ireland is broke. Not that Higgins cares about how much things cost, it seems.


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  1. […] ratings agencies haven’t cut us to junk. The word “yet” comes to mind – I have pointed this out before, but it should be noted that total Irish government voted spending was up year-on-year in the first […]

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