Market Musings 4/11/11
It has been an extraordinary 48 hours since my last update. Greece’s government flip-flopped on the referendum issue which has given some relief to markets, at the expense of underlining again just how incompetent the Eurozone’s political leadership is. We’ve seen a huge amount of corporate newsflow and further updates on the Irish government’s fiscal strategy.
UK retailers have attracted my attention quite a bit since the start of the year. Regular readers will know how bearish I am on the sector, so while this isn’t an area I’d look to invest in, Lewis at Expecting Value did a good piece on some of the listed REITs that are one way to get exposure to the UK consumer. Elsewhere, Bloomberg published an interesting article about how more companies are hiring lease-breaking specialists, which bodes ill for the UK REIT sector in general.
(Disclaimer: I am a shareholder in RBS plc) Speaking of the UK, RBS released results this morning that were behind expectations, but despite this analysts seem to be taking a glass half-full approach to the stock. I’ve a legacy position in RBS that is horribly underwater, and I have to admit that I have been toying with the idea of doubling/trebling/quadrupling (!) up on my holding in an effort to claw back losses. However, my fears about RBS’ potential losses on European sovereign debt have made me hesitant up to now. It might be one to play once the Euro-madness abates. I’ll wait and see.
Closer to home, the Irish government published its Exchequer Returns data for the first 10 months of the year. The deficit came in at €22.2bn (roughly 15% of GDP) versus €14.4bn in the same period last year. Total Irish government voted spending was only -0.5% in the first 10 months of 2011 versus the same period in 2010. So much for “austerity”. Even more ominously, Ireland’s Exchequer deficit for the first 10 months of 2011 is equal to 83% of the entire tax take during that period. Leading on from this, the Irish government is raising its fiscal consolidation target to €3.8bn from the previous €3.6bn. This should come as no surprise to my readers, given that I sketched the reasons why this was certain to happen here.
The airline sector has thrown up a lot of interesting pointers in the past few days. Aer Lingus says it expects to report full year 2011 operating profit “at the upper end of the range of current market expectations“, which continues the more positive narrative I’ve remarked on before. Elsewhere, IAG (British Airways + Iberia) has announced that it is to buy BMI. This raises an interesting question as IAG currently has 44% of Heathrow slots while BMI has 8.5%. Should competition authorities compel IAG/BMI to shed some of these, I wonder if Aer Lingus would consider putting some of its vast cash pile to work and buy some slot pairs? As things stand Aer Lingus has the 4th highest number of slots (roughly 4%) at Heathrow, behind IAG, BMI and Virgin Atlantic.
In the betting space, Boylesports has bought William Hill’s retail estate in Ireland. While this is only a small number of shops, it is likely to be an incremental positive for Paddy Power, as the fewer people there are making odds, the less competition. I’d an interesting discussion about this on Twitter with a number of my “followers”, and it was interesting to have the Boylesports PR person join the debate, which goes to show that they are very clued in to social media, so well done to Nicola McGeady for her attentiveness!
The ECB’s 25bps rate cut is a small positive for Ireland. I’ve previously done up some back of the envelope calculations on how positive this is, if any of my readers have better data please send it on.
(Disclaimer: I am a shareholder in Datong plc). One of the smallest positions in my investment fund is Leeds based spy gadget maker Datong plc. When I first invested in them I did rather take it for granted that the equipment they produce would be used against ‘Johnny Taleban’ et al. However, I was intrigued to read that London’s Metropolitan Police uses some of its kit to, ahem, “eavesdrop” on people in the UK. Not that this story has done Datong any harm, given that its share price has shot up following this news. No such thing as bad publicity I guess!