Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 6/9/11

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European markets were slaughtered today on renewed banking and sovereign concerns. The Euro Stoxx 600 index recorded its biggest two-day decline since March 2009, while only one stock in the FTSE 100 (Randgold) finished the day in positive territory. Unsurprisingly, banks were the weakest performers in the UK and Ireland (Barclays -6.7%, Lloyds -7.5%, AIB -8.7%, Bank of Ireland -11.4%, RBS -12.3%). Bank of Ireland is now 22% below its recent rights issue price. With the US markets shut today for Labor Day, it will be interesting to see if tomorrow is significantly different.

 

In terms of the things that have grabbed my attention since my last blog, woolly accounting techniques, results from Fyffes and some straight taking from BP are the main items.

 

Listed companies are renowned for putting a gloss on their results, by focusing on the more attractive measures of their financial performance when reporting numbers. By way of illustration, stocks listed in New Zealand used 214 different measures of reporting profits in 2010. The key takeaway from this being that investors should drill down into company results to see what precisely makes up the reported “profit” figure. So, caveat emptor.

 

(Disclaimer: I am a shareholder in Total Produce plc) Fyffes reported solid H1 results today, with management reaffirming FY guidance of adjusted EBITA in the €20-24m range. I’m not a particular fan of Fyffes, despite its cheap rating, strong balance sheet and decent dividend yield. This is because you get all of that, but a significantly more stable business model in its spin-off company, Total Produce, which reports H1 numbers tomorrow.

 

(Disclaimer: I am a shareholder in BP plc) I was pleased to see BP CEO Bob Dudley acknowledge that the company’s shareholders are frustrated with the share price performance. That the company has been one of the cheapest oil majors for some time shows that the market is unconvinced by the strategy being pursued by management, so hopefully this will herald some changes. At a minimum I would like to see a resolution to its distracting rows in Russia and a material shake-up of its portfolio of assets, but if management doesn’t get its act together I wonder if investors will move to demand a break-up of the group to unlock BP’s latent value.

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Written by Philip O'Sullivan

September 5, 2011 at 5:54 pm

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