Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 12/1/2012

with one comment

The volume of newsflow is still quite light, but at least what little there is, mainly in the form of trading updates, has provided much food for thought.


Computer games retailer Game Group issued a very grim update covering the Christmas trading period. Like-for-like sales in its UK and Irish stores were -15.2% in the 8 weeks to January 7th. This was worse than the -10% recorded in the 49 weeks to the same date, so Christmas offered no respite, even in spite of the much milder weather we have seen this winter. Even more ominously, Game said that “the difficult market conditions raise the likelihood that [Game] will not meet its EBITDA covenants (fixed charge coverage and leverage) when they are tested on 27 February 2012″. Given those pressures, and the structural issues around computer game retailing (both the encroachment of multiples like Tesco into the space and internet operators) it’s not a stock for me.


(Disclaimer: I am a shareholder in Ryanair plc) Switching to the travel sector, Ryanair announced that it has opened its 50th base – its first in Cyprus. This marks the latest push by the carrier into Southern Europe, and is a further setback for tour operators and charter airlines alike. 


In the construction space, Grafton issued a very solid trading update, with buoyant sales in the UK (helped by good weather) in November and December in particular driving a modest upgrade to its 2011 profit guidance. I was pleased to see a modest uptick in sales trends in its Irish business (circa 25% of revenues), but this was presumably also helped by easy comparatives given the snow disruption in the previous year. Its peer SIG also revealed that 2011 was a bit better than it had projected, but it did add that it believes “market volumes will be slightly down overall in 2012”.


(Disclaimer: I am a shareholder in Abbey plc) Staying with construction stocks, housebuilder Barratt Developments issued a strong trading update this morning, revealing a 40% increase in operating profits and saying that it has a “strengthened forward order book” going into the second half of its financial year. It noted that while house prices overall were stable, it saw “greater robustness” in the South-East of England, which has positive implications for Irish listed Abbey, which has most of its operating units in that area.


In the food sector, Swiss-Irish baked goods group Aryzta raised just over €140m from a placing. This is a shrewd move that strengthens its balance sheet and gives it more flexibility to undertake more deals in the future.


(Disclaimer: I am a shareholder in Playtech Ltd) In the blogosphere, Mark Carter writes of his decision to sell his shareholding in Playtech. I’m minded to follow him to the exit, but I’m in no particular rush to do so (there is not a lot on my ‘shopping list’ at the moment). Elsewhere, John McElligott concludes his two part series asking if Eurozone equities offer good value at these levels.


Written by Philip O'Sullivan

January 12, 2012 at 10:48 am

One Response

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  1. […] shares have been suspended, with management saying the equity is likely to be worthless. I mentioned the stock back in January, and I’m pleased to have reached the conclusion I did then! Another good […]

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