Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 18/11/11

with 2 comments

Since my last update it’s been all about the Eurozone crisis and a tidal wave of company newsflow. The latter reads a lot better than the former, which continues my narrative about how corporations appear a safer store of value than sovereigns at this time.


(Disclaimer: I am a shareholder in Datalex plc). Kicking off with corporate newsflow, Datalex issued a solid (if frustratingly qualitative) trading update yesterday, in which management revealed that it has doubled its customer base in the past 18 months. The company says that it is on track to deliver growth in both EBITDA and cash this year, but it held back from providing anything more specific than that. In all, a positive enough update, but more detail would have been appreciated.


Elsewhere, UTV Media’s trading update, also released yesterday, showed that TV and Irish radio weakness is being cancelled out by UK radio strength. I like what UTV has been doing of late, but what turns me off the story is the way the value of its core radio and TV franchises are being eroded away by structural changes in technology and media consumption.


(Disclaimer: I am a shareholder in Independent News & Media plc) Staying in the media space, Independent News & Media issued a trading statement earlier today in which management downgraded the group’s FY EBIT guidance from a range of €78-83m to €74-78m, but at the same time it said that the net debt reduction goal is “on target”. Given how, as I’ve noted before, the INM investment case hinges on deleveraging, I’m relaxed about the profit warning (in any event, given deteriorating macro indicators is it really a surprise?) so long as they can continue to squeeze enough cash out of the business to continue to meet their debt reduction goals.


Turning to insurer FBD, going into today’s trading statement I cautioned that the recent floods could dent the group’s near-term fortunes. In the event, management issued a very strong trading update, upgrading its full-year earnings guidance by 10%, helped by an improving loss ratio. So, a very big slice of humble pie for me where this company is concerned!


The other small listed Irish financial company, IFG, issued a solid statement today. While they don’t spell out what their full-year targets are, management say  “the group is on track for the year as a whole” and “net debt is now negligible”.


(Disclaimer: I am a shareholder in Total Produce plc). Fyffes announced yet another share buyback this afternoon. The company now holds 33m shares in Treasury, which equates to over 10% of the shares it has in issue. I note increasing chatter about the possibility of a re-merger of Fyffes with Total Produce, which is something that I would not welcome given the inherent riskiness of the Fyffes model versus the low-risk strategy Total Produce adopts. It seems that half the blogosphere (possibly a slight exaggeration!) is to be found on the Total Produce share register, with the likes of John McElligott, Wexboy, Valueandopportunity and myself all holding it. Perhaps we should set up our own value-oriented investment fund!


Switching to macro news, data released by the Irish Banking Federation show new mortgage lending has halved in the year to the end of September. Even more significantly (but hardly surprising) is the revelation that the volume of investor mortgages, which represented c.14% of total Irish mortgages in 2005/2006, is -99% from peak levels.


Interestingly, the Brent-WTI crude spread is narrowing. My old friend Wexboy has a good primer on this issue here.


The Eurozone crisis is rumbling on, and to me debt monetisation now looks unavoidable. I gave a presentation to the Smurfit MBA Student Investment Fund earlier today which touched on that issue, and I note this evening that Pimco’s Bill Gross has opined:


“[The] ECB must write checks; trillion dollar ones. Otherwise financial delevering will accelerate & threaten systemic stability”.


Staying with the Eurozone, this is an interesting blog post – Looking at the eurozone through a NIIP prism.


And finally, one of my classmates, Stephen Smith, made this excellent short documentary for the 45th anniversary celebrations for the Smurfit MBA.

2 Responses

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  1. Philip

    And then we jump on the next TOT earnings call (hmm, do they even have one?) and ask them to use a fair chunk of their idle EUR 90 mio of Cash for a tender offer!

    Yeah, not too enamoured with Fyffes either, but I think a merger w/ Total Produce wd still be worth it as it: i) shd offer 2-3 years of cost cuts/earnings gains, ii) increases financial firepower for acquisitions, iii) may prompt some positive newsflow/sentiment and/or be a value catalyst, and iv) cd even flush out an external takeover bid. Might even distract Fyffes enough that they forget buying pineapple farms and the like…!



    November 19, 2011 at 5:37 am

    • I would much prefer that they (i) increase the dividend payout; (ii) buy back more shares; and (iii) make further bolt-on acquisitions and squeeze synergy benefits out of them as opposed to merging with a more volatile business!

      Philip O'Sullivan

      November 21, 2011 at 8:41 am

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