Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 27/9/11

with 2 comments

It’s been a very busy couple of days in terms of newsflow. Chief among this is that we’ve seen rumour after rumour about Greece, which hasn’t helped markets. I know it’s stating the obvious, but the sooner a proper resolution to its problems is reached the better.


There has also been a lot of talk about a medium-term return by Ireland to the debt markets. I find this to be fanciful given the troubled backdrop, and note that those excitedly pointing to the way our bond yields have fallen as a way to support this argument neglect to mention that this has been largely driven by ECB purchases of Eurozone bonds (totalling €156.5bn to date!) in the secondary markets. I don’t see Ireland returning to the debt markets before 2014 at the earliest in the absence of EU guarantees or some other mechanism underpinning new debt issuance. In addition, sentiment towards peripheral European countries won’t be helped if this prediction comes good – Pimco sees Europe slipping into recession next year.


I was amused to see “reassuring” comments from grandees in both France and Spain about their banking systems. We had similar pronouncements from some of the powers that be in Ireland before our banks blew up. Here’s then Financial Regulator Patrick Neary’s pitch to reassure the Irish population.


Aryzta issued a solid set of results yesterday. EPS came in about 2% ahead of consensus, while on the outlook the company says: “We believe FY 2012 consensus EPS appears reasonable and our stated earnings goals for 2013 are still attainable”. On the development side, Aryzta said it will spend €100m on three bolt-on acquisitions in Asia (Taiwan, Singapore) and the UK, along with building a new bakery in Malaysia. This development update highlights just how successfully the company has penetrated new markets across North America, Europe and Asia. Aryzta is cheap, trading on just over 8x its targeted FY13 earnings. However, it’s not one for me at this stage given that I see better value elsewhere.


(Disclaimer: I am a shareholder in Ryanair plc). I was also pleased to see a decent upward move in Ryanair – it has gained nearly 10% in the past week as oil has been carried out. It’s a useful reminder of the sensitivity of airlines to movements in energy prices, and also of its hedging qualities given the declines in some of my oil-related holdings! I note that the largest shareholder in its main competitor Easyjet is talking about setting up a new carrier, which marks the latest headache Stelios has caused for EZJ.


In terms of an overall market view, regular readers of this blog know that I am positive on equities. This stance is mainly driven by the the far more attractive yields relative to bonds and cash that shares offer and also the strength of corporate balance sheets relative to sovereigns.  I was pleased to see that legendary fund manager Crispin Odey is also favourably disposed towards equities.


Finally, I was interested to see that many Portuguese citizens are emigrating to the country’s former colonies in search of work.


Written by Philip O'Sullivan

September 27, 2011 at 2:01 pm

2 Responses

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  1. […] Philip O'Sullivan posted on his blog a link to an article on fund manager Crispin Odey, which I rather liked. While I try not to let my macro view affect my investment decision making – I consider it more or an entertaining diversion than an investment strategy for a rookie like me – he neatly summed up my opinion on the market and the current crisis. […]

  2. […] Aryzta peer CSM issued a profit warning, citing difficult economic conditions. Aryzta was one of the weakest performers on the ISEQ yesterday, presumably on the back of this announcement, but it should be noted that the Irish-Swiss concern recently issued a solid enough set of results. […]

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