Market Musings 19/10/11
Since my last update, we have seen even more troubling economic newsflow. Japan cut its economic growth forecasts, chiefly due to concerns about the world economy. Portugal reports that its budget deficit is running at €3.4bn worse than expected. China’s economy grew 9.1% year-on-year in Q3, the slowest pace since 2009. Moody’s warned on its AAA rating for France. Belgian government bonds traded at a record discount to German debt – which prompted ascerbic Twitterer “Schaefdogschaef” to quip: “I still chuckle when I remember 7 days ago they said that taking 60% of Dexia’s balance sheet as a guarantee is no problem!“. UK inflation sky-rocketed – the RPI is at a 20 year high, CPI at a 3 year high. Which is precisely what you’d expect when your country’s central bank turns your country’s currency into toilet paper. The UK ‘misery’ index is now at a 19 year high, compared against the US which is at a 28 year high.
The disruptive effects of the internet continue to shine through – mall vacancies in the US stand at record levels. We all know what’s happened to music retailers, book shops, even some clothing companies. The structural trends have clear implications for commercial property and the retail industry.
(Disclaimer: I’m a shareholder in BP plc) Anadarko agreed to pay BP $4bn over the Macondo disaster. This is a clear positive for BP, and as I have noted before, settlements of this type can act as a catalyst for the share price.
Turning to Irish corporate newsflow, we saw a report in the FT that Etihad is considering a bid for the Irish government’s stake in Aer Lingus. I’m a little dubious about this story, and would echo a lot of the good points Joe Gill at Bloxham makes here. Elsewhere, the departure of Air France – KLM’s CEO should presumably knock speculation on the head that the carrier was considering a move for Aer Lingus. The intentions of IAG (British Airways and Iberia) remain unknown, but to me they seem like the most probable buyer of the government’s 25% stake (provided, one assumes, that Ryanair is willing to sell theirs too). Speaking of Ryanair’s attitude towards Aer Lingus, this morning it threatened to call an EGM and put forward a number of motions. One of those is that Aer Lingus pay a special dividend – it will be interesting to see how Ireland’s cash-strapped government votes if that goes ahead.
We also saw United Drug’s 50% UK home health jv partner Medco buy out the company’s shareholding. This is a shame as the jv has an enormous amount of potential given government drives for more people to be treated at home as opposed to in hospitals.
Elsewhere, C&C reported H1 results earlier today. The company has retained its full-year guidance despite a “tough second quarter”. Its CEO is also to step down, and be replaced by the CFO. I note that C&C’s H1 revenues were -7.2% yoy in constant currency terms (not a surprise given the weather and tough consumer backdrop), but good work on pricing (yes, this has some impact on revenues) saw operating margins rise by 3.1 percentage points.
I note the latest round of oil and gas exploration licences here failed to attract any bids from the supermajors. A lot of political “activists” and their cheerleaders in the media here like to claim that the Irish government is “giving away” our natural resources. If that is true (and I don’t for one second believe that it is), then why are the supermajors not interested?