Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 12/7/11

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It’s another weak day on the equity markets as sovereign debt concerns continue to cause jitters. Since I blogged yesterday, we’ve seen further symptoms emerge of the disease that Europe has failed to contain. Markets continue to tumble, while both the Spanish and Italian 10 year bond yields are at their highest level since 1997. James Mackintosh from the FT has a good video on the European mess here. Not that things are rosy elsewhere – Morgan Stanley cut its US H2 GDP forecast to 3.5% from the previous 4%.


(Disclaimer: I’m a shareholder in Uniq plc) Greencore issued two notable updates this morning. The first was a trading statement in which management said that it “anticipates delivering adjusted EPS in line with market expectations” for the full year. That was overshadowed by the second, in which Greencore announced a recommended £113m offer for Uniq plc, which will be part funded by an €80.2m rights issue. Not that this will come as a surprise to any of my regular readers – check out this tweet from June 30th. For background primer to this, the FT has a good article here, while I previously wrote about the logic of a Greencore-Uniq tie-up here. This is the second UK plc in my portfolio (after Chaucer) that has agreed to a takeover this year, which happily frees up even more cash for me to invest once markets settle down.


I was interested to see that Greencore’s rights issue is priced at a >50% discount, which compares to the <20% discount that Bank of Ireland (BKIR) had priced its one at. Earlier today BKIR was trading below its rights price, which is an ominous sign, while stockbroker Dolmen says:


“Due to [the bondholder] overhang plus the uncertainty over NIM and the low ROE the group will generate over  coming years we are recommending not taking up the rights. The capital can be used better elsewhere in  the market and we believe the shares will remain weak post the rights due to the bondholder overhang plus  the current uncertainty within Europe”


I have been calling for Ireland to step up its austerity drive for some months now. These scary charts show why time is of the essence, while this report saying that “almost half of the population is now receiving a social welfare payment” gives a clue as to where some considerable savings can be achieved.


Written by Philip O'Sullivan

July 12, 2011 at 11:21 am

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