Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 6/12/11

with 2 comments

The past couple of days have seen more hot air from Merkozy and a warning from S&P about the ratings it applies to all single currency users. This has been covered extensively elsewhere, so I’m focusing this blog on the budget and corporate newsflow.


We’ve seen a two-day budget presentation by the Irish government. Many of the responses that I’ve seen across various social media have been either hypocritical (Fianna Fáil activists hilariously complaining about the continuation of the policies implemented by their party when it was in government) or innumerate (people who should know better claiming that Ireland should carry on borrowing over €5,000 a year for every citizen – a policy whose logical conclusion is that more and more tax revenue will be diverted to paying interest costs, thus necessitating deeper cuts down the line). Thankfully the coalition government (which I did not vote for, incidentally) accepts that fiscal consolidation simply has to happen, although I would prefer if the balance of consolidation fell more on the spending side – I was particularly disappointed to see higher tax rates for CGT, DIRT & CAT, which makes no sense when Irish households urgently need to rebuild shattered balance sheets (Cormac Lucey has done some great work on this here).


(Disclaimer: I am a shareholder in Irish Continental Group plc) Switching to corporate newsflow, we’ve seen two big announcements from Greencore this week. Firstly, it announced that takeover  talks have ended, citing market turmoil and “the Board’s unanimous view on the strong underlying value of Greencore”. Secondly, this morning Greencore reported solid results, with 3.4% like-for-like revenue growth in its key convenience food segment achieved. Management say that the group has made a good start to FY12 despite tough market conditions. The conference call which followed the results revealed some good recent contract wins, such as for the supply of sandwiches to both Waitrose and Aldi. Overall, Greencore is cheap and has an attractive yield (circa 7%), but it also comes with £201.3m of net debt attached (roughly 3x FY EBITDA). Coming from the perspective of someone who likes high yielding stocks as a rule I would much prefer something like ICG, which also yields circa 7% but which has net debt of only €13m (less than a third of FY EBITDA).


(Disclaimer: I am a shareholder in Independent News & Media plc) Elsewhere, INM’s Australian associate APN cut its earnings guidance yesterday, which presumably means the risks to INM’s recently downgraded guidance lie to the downside. I was intrigued to read in the weekend press a report that financier Dermot Desmond has increased his stake in INM, which makes the most interesting shareholder register of any plc on the Irish Stock Exchange even more interesting!


(Disclaimer: I am a shareholder in PetroNeft plc) PetroNeft released “encouraging” early results from its fraccing programme in Western Siberia earlier today. While I would have preferred something a little more conclusive, it does allay some of my concerns about this stock.


(Disclaimer: I am a shareholder in Datong plc) Spy gadget maker Datong also issued results earlier today. To be honest I hadn’t been maintaining my model on it that diligently, so while it came in miles below my estimates I think this has more to do with my inertia towards what is a very small holding (just under 0.5% of the portfolio) more than anything else, although I note the shares were marked down (on low volumes) 19% today. I’ll update my model in the coming days to see if there are any interesting angles around the stock.


And finally – this article ties in with my own instincts at this time: “Funds bet on euro survival, 2012 risk rally“.


Written by Philip O'Sullivan

December 6, 2011 at 5:22 pm

2 Responses

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  1. […] a setback, it is relatively minor (and one-off) so I don’t think it does anything to change my investment view on it. If you want a even more downbeat investment view on Greencore, read this two-parter from Wexboy […]

  2. […] legendary Irish investor Dermot Desmond has been increasing his shareholding in INM. This confirms press reports before […]

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