Market Musings 29/8/11
It’s an extremely busy week for three reasons. Firstly, I started my MBA at the Smurfit Business School earlier today. Secondly, there’s a lot of corporate results out in Ireland this week, with eight plcs reporting interim numbers. Thirdly, and most importantly, I’m getting married on Saturday. So, please forgive me if blogging is light this week!
(Disclaimer: I’m a shareholder in Irish Continental Group plc and Datalex plc) First up, as I’ve an early start tomorrow I won’t be able to give any “breaking” reaction to H1 results from Datalex, Paddy Power, Irish Continental Group and UTV Media, but for what it’s worth here’s what I’m looking for within the statements. Turning firstly to Datalex, the travel software company, I’ll be watching for news on (hopefully) more contract wins, and an update on its cash position. Its recent IMS spoke of how it is maintaining the positive momentum seen in FY10, so here’s hoping this narrative remains unchanged. On the cash side, net cash stood at €11.1m at the end of 2010, or 15.5c a share (its share price at time of writing is 39c, so all other things being equal the underlying business itself is valued at €16.8m). Goodbody reckons that it can generate €4.4m in EBITDA this year, and an EV/EBITDA multiple of under 4 is clearly well into “cheap” territory. Presumably this valuation is a major factor behind purchases of shares in Datalex this year by the likes of Pageant and legendary investor Dermot Desmond (or “The Kaiser” as he’s known in these parts!).
On Paddy Power, I expect a strong set of interim results, helped by ongoing positive momentum on the online side, a bigger contribution from the UK retail estate (the group added more shops last year) and continued buoyancy in the developing Australian market. The Irish retail performance will no doubt be closely watched given the pressure the sector here is under. Given the well-publicised difficulties of PWL’s domestic peers (e.g. Celtic Bookmakers), a bearish outlook on its home market raises the prospect of further competitors exiting the Irish retail space, which will see PWL’s dominant market share here rise further.
UTV Media will have an opportunity to update the market on advertising trends across its radio operations in the UK and Ireland, along with its television franchise whose reach extends across the Island of Ireland. Given the difficult economic backdrop and recent weak advertising outlook commentary from its newspaper peers in the UK and Ireland, I would not anticipate a bullish outlook statement. Irish Continental Group has been a favourite of mine for some time. I view it as a stable long-term dividend play so tomorrow’s results are unlikely to change my views one way or the other. For what it’s worth, the broker commentary I’ve read suggests a slightly weaker yoy performance in H1. Regardless, who can complain about a circa 7% yield (at these levels) from a company that’s virtually debt free in these uncertain times?
Turning to the wider markets, I was pleased to see a strong performance in Europe today, helped by a positive reaction by investors to news of a merger of Greece’s 2nd and 3rd largest banks. That said, I wouldn’t be bulled up by a merger between banks in a economically fragile peripheral European country – the consolidation of Ireland’s financial players hasn’t exactly proved a panacea to our problems has it?
A tale of two currencies – the weekend Financial Times had a scenario which underlined the contrasting fortunes between the Swiss franc and the British pound. If a UK borrower converted a sterling mortgage worth £500,000 into Swiss francs in August 2007, by last week this loan would have increased in sterling terms (not including repayments) to £917,991.
Finally, as mentioned above I began my full-time MBA in the Smurfit Business School earlier today. It was a strange experience returning to college after so many years, but looking at some of the names of the alumni posted on the walls of the campus (Smurfit was the first European business school to offer an MBA back in 1964) I see that I’m in good company! Some of the other things that caught my eye included the split between Irish and international students. Given the poor state of the economy here, which limits the pool of money available to fund scholarships, I was unsurprised to hear that the proportion of international students, at 55%, was higher than normal. I was, however, surprised by the gender balance, with 73% (assuming I heard correctly) of students being male. It was also interesting to work on a project with a multinational team (UK, Irish, Russian) this afternoon from an array of backgrounds – a bit different to the years I spent working with an almost entirely Irish team in my stockbroking days! Over the coming months I look forward to sharing the more interesting bits of information from the case studies I will do in class with you.