Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 8/11/11

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It’s very hard to find the time to blog on consecutive days due to all of my various commitments, but given today’s extraordinary events involving so many Irish companies it would be remiss of me not to put aside some time to reflect on what has been going on.


(Disclaimer: I am a shareholder in CRH plc) The Irish Stock Exchange’s largest constituent, CRH, released a downbeat trading update today, with guidance coming in behind what a lot of brokers had penciled in, with the miss due to worse than expected margin pressures. However, despite this the shares rallied strongly, finishing the day up 4% after it also announced that from December 6 it will have a primary listing in London and a secondary listing in Dublin. This will put CRH into the FTSE 100 index from mid-December, so what we saw today was a lot of funds getting involved ahead of the inevitable “index buying” that will follow CRH’s FTSE 100 inclusion. The flipside of course is that this is an ominous development for the Irish Stock Exchange, which now looks a shadow of its former self.


Another chunky component of the ISEQ is DCC, which, as regular readers know, is a stock that I’m very fond of. Earlier today it issued H1 results that struck a reasonably downbeat tone, as expected, due to the warmer temperatures in the UK and Ireland in recent months. While DCC got a kicking today, declining 4.3% in Dublin, this reaction is unwarranted. Weather is clearly something that DCC has no control over, and had normal temperature levels manifested themselves, management would be rightly toasting a solid set of numbers. DCC is a conglomerate with 5 distinct businesses, and outside of Energy, where reported profits fell 38% for the reason outlined above, all 4 of its other divisions (Sercom +7%, Healthcare +1%, Environmental +12%, Food +11%) reported healthy profit growth, despite difficult economic conditions. Trading on less than 10x earnings, with a strong balance sheet and a proven record of generating consistently high returns, DCC looks like very good value here.


We also saw quite a bit of M&A activity involving Irish companies buying overseas businesses today. C&C acquired the #2 cider brand in the USA, Hornsby’s, in a deal worth up to €20m. Obviously this is a small deal, but at the same time it is one with huge potential. In addition to C&C being able to apply its resources in terms of a strong balance sheet and considerable experience in the UK and Ireland to this new US unit, Hornsby’s also offers a platform for C&C to cross-sell its Magners brand. From the C&C conference call it was revealed that Hornsby’s complements Magners in terms of price points, with Magners selling at the top end of the range – at $10.99 for a six pack versus $6.99-$7.99 for Hornsby’s, which tends to sell about $1 behind the market leader, Woodchuck.


Another Irish firm that announced a deal today was Donegal Creameries, which announced that it has bought a Scottish seed potato business. AJ Allan will grow Donegal’s potato output from 50,000 to 62,000 tonnes annually, and marks the ongoing re-positioning of the group following the recent sale of its liquid milk business.


For a perspective on how bad banks’ legacy loan books are in Ireland – Lloyds’ Irish portfolio is now 67% impaired.


My marketing professor recommended that I look at Seth Godin’s blog. One of the first blogs that I read on it was this one – Six questions for analyzing a website – which is a great read. If you run your own site, check it out.


In terms of other inspired works – Leigh Drogen’s excellent A Message To My Generation is one of the best things I’ve read in a long time.


Written by Philip O'Sullivan

November 8, 2011 at 7:53 pm

One Response

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  1. […] have struggled in recent times after management lowered guidance due to this weather effect, but as I’ve previously argued, this looks overdone. Profits in its four other divisions (IT, Food, Healthcare and Environmental) […]

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