Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 14/12/11

with 2 comments

(Disclaimer: I am a shareholder in CRH plc) There was a good bit of newsflow around CRH and its peers in recent days. In the US, Martin Marietta made a $5bn hostile bid for Vulcan Materials.  If the deal goes through, on paper the combined entity will have 15% of the US aggregates market, compared with 6% for its nearest competitor, CRH. However, in reality I expect forced sales from the combined entity to satisfy regulatory concerns, which will present opportunities for CRH to add to its portfolio of assets in North America at very attractive prices (given the paucity of alternative buyers in the market for heavyside assets). In terms of the implications of the deal for CRH’s valuation, I was interested to read a note from Merrill Lynch which said if the Martin Marietta-Vulcan bid multiple is applied to CRH’s US aggregates unit, the rest of CRH is trading on only 2x EV/EBITDA…”or, looked at alternatively, CRH’s share price should be €25 if we apply this 20x multiple in any sum of the parts calculation”. At the time of writing CRH’s share price is €13.35.


This morning Paddy Power announced that it is entering the North American market after signing a B2B deal with the British Columbia Lottery Corporation. This is an excellent deal that highlights once more Paddy Power’s superior infrastructure – it follows another B2B deal with France’s PMU and showcases Paddy Power’s evolution into a business with both B2B and B2C offerings. As cash-strapped governments the world over relax gambling rules in an effort to find new streams of taxable revenue, this will present a clear structural growth opportunity for Paddy Power to win more deals of this kind.


We saw a couple of updates from firms exposed to the UK housing market this week. Carpetright’s H1 results looked reasonably OK (all things considered, given the difficult UK consumer backdrop) to me. There were no major surprises in the statement, with like-for-like revenues -2.4% while the dividend was suspended (as previously flagged). Elsewhere, Travis Perkins released a very solid trading update, in which management said the group is on track to meet profit and net debt targets for the full-year.


(Disclaimer: I am a shareholder in Datalex plc) Following the recent positive news of a resolution of its litigation with Flight Centre, Datalex was upgraded to ‘Outperform’ at Davy. The company issued a stock exchange release which said it would book a $2m exceptional item regarding this settlement. I was pleased to see the firm also state in the release that its EBITDA and net cash guidance for FY11 remains unchanged.


(Disclaimer: I am a shareholder in Ryanair plc) Staying in the broader travel sector, this is more bad news for tour operators – Ryanair is to open a new base at Palma.


Stockbroker Brewin Dolphin published a list of 15 stocks for own for the next 4 years (i.e. 15 for 2015).


Speaking of stockbroker recommendations, Dolmen upped its price target on Cove Energy to 200p/share. That’s 100% upside from where the stock was trading earlier today!


(Disclaimer: I am a shareholder in Irish Continental Group plc) And speaking of broker notes that caught my eye, I saw an excellent 30 page note from Merrion’s Gerard Moore today on ICG – “Cash Machine”. For income investors, this part is particularly interesting:


“Even in a stressed scenario we estimate ICG could comfortably pay a dividend of €1 (Yield 7%) and in our core scenario ICG could increase the dividend to €1.23 in FY 12 (Yield 9%) and €1.98 in FY 13 (Yield 14%), while remaining debt free“.


Switching to macro news, economist and Bloomberg Brief contributor Michael McDonough has been doing a great job in charting the decline in the Chinese housing market. This chart captures the trend in house prices there. And as we’ve seen in Ireland, such moves bode ill for China’s financial institutions and the wider economy.


Greece’s January – November budget deficit? €20.52bn. Ireland’s budget deficit for the same period? €21.37bn


2 Responses

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  1. Hi Philip.
    Like you, I was interested to see the valuation on the MM/Vulcan deal. Only issue is that CRH always looks great value on SoP methodology.
    However it does provide some backdrop on support. Hopefully as we come out of this present economic malaise and crisis, CRH will be able to regear the B/S with some notable asset acquisitions. It has been some time since we have had anything meaningful – did they not lose their internal M&A team to private equity a few years back?

    John McElligott

    December 14, 2011 at 5:41 pm

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