Market Musings 2/11/11
Obviously, events since my last update have been dominated by the staggering behaviour of the Greek authorities. Greece’s decision to hold a referendum now ratchets up the risk factor considerably, and it was no surprise to see markets get hosed yesterday. Even more ominously, the decision by the Greek political leadership to sack the heads of all three branches of the armed forces has raised fears in some quarters that Greece may return to its days of military rule before the crisis is out. As a postscript, RBS made a Freudian slip in a morning note issued yesterday, saying that it sees the Greek vote as “a major negative for Greece and the rest of the momentary union”!
Elsewhere, UK retail sector weakness is a theme that has been well-covered on this blog. An update from JJB Sports in which it disclosed an 18% decline in H1 like-for-like sales does nothing to lift the gloom. Today Next revealed that while its High Street stores have seen sales go into reverse, internet sales are performing resiliently. To me this again highlights the disruptive impact of the internet and the negative consequences it is having for the High Street, which is something I’ve touched on before.
Speaking of gloom, Danske Bank reported that 9 month losses at its Republic of Ireland unit, National Irish Bank, widened to €600m from €468m in the same period last year. This rise highlights how weak the domestic economy remains, despite headline growth rates being flattered by a resilient export performance (which is mostly led by multinationals).
(Disclaimer: I am a shareholder in Irish Continental Group plc) Staying with the domestic economy, I was unsurprised to see the taxpayer subsidised Swansea-Cork ferry service go into examinership. This is an inevitable consequence of government – both national and local – going overboard. The six counties of Munster (population 1.2m) have four airports, and there is a perfectly good road connection between Rosslare on the east coast (from which ICG provides a Rosslare-Pembroke service at no cost to the taxpayer) and Fastnet Line’s catchment area. Is it any wonder that Cork and Shannon airports lose money when the State is happy to subsidise economically unviable competitors? The Exchequer just cannot keep bleeding taxpayers’ money. There just isn’t the need for a Swansea-Cork service on top of what’s already there – if there was, its operator wouldn’t be going into examinership despite having received so much taxpayer support.
(Disclaimer: I am a shareholder in Smurfit Kappa Group) Turning to Irish corporate news, this day next week sees Q3 results from Smurfit Kappa Group. The broker notes I’ve received today that preview next week’s numbers all point out – rightly, in my view – that the stock is cheap. However, I was struck by the revelation in a note by the always-excellent David O’Brien at Goodbody that the range of estimates in the market for Q3 EBITDA is €238-266m. Given such an unusually wide range I wonder there’s a good chance that more than a few investors will be disappointed, unless, of course, the company produces blow-out numbers. If it doesn’t, this could mean that the most important aspects of the results release, namely (i) progress on debt paydown; and (ii) commentary on the outlook, given the challenging economic backdrop, could be overlooked by some investors, which would be a pity.
In the past few minutes Kerry Group has released an interim management statement. Management has reiterated the company’s FY goal of 8-12% growth in earnings per share. I don’t see anything in the IMS to move the price one way or the other. As far as I can see the performance across business units is as expected and there is no new M&A news.