Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 31/1/2012

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(Disclaimer: I am a shareholder in Ryanair plc) The main Irish corporate news since my last update has been Ryanair’s strong Q3 results. The company raised its full-year net income forecast from €440m to €480m (having already raised it from €400m back in November). However, even this raised guidance looks conservative, given that Ryanair generated €558m in net income in the first 9 months of its financial year. In my last blog I wrote that one of Ryanair’s competitors, Spanair, had gone bust. Another competitor, Hungary’s Malev, looks to be in dire straits. The timing of this couldn’t be better for Ryanair, which is opening 5 new routes from Budapest in April. Easing competitive pressures as rival airlines cut back on capacity and/or exit the market altogether are facilitating Ryanair’s policy of nudging up ticket prices (average fares rose 17% in Q3) – and with circa 75m passengers a year using the carrier, every incremental euro of per passenger revenue has a material impact on the bottom line. Given these factors, I’m happy to run my Ryanair position (which makes up a chunky 17% of my portfolio) for now. To finish up on Ryanair on a humorous note, Mark Carter spotted that Google Finance’s profile of the airline concludes with this rather disturbing line: “Ryanair sells seats on a one-way basis.


Elsewhere in the airline sector, Aer Lingus responded to press reports about the IASS pension deficit. This has been a big overhang for the company, and while a resolution looks likely to involve AERL parting with some of its large cash pile, in a funny way the market appears to place more of a value on removing the uncertainty than it does on the cash outflow that will likely be involved, given the way AERL’s share price has been motoring ahead of late.


(Disclaimer: I am a shareholder in Irish Life & Permanent plc) Bloomberg picked up on a Sunday Times report that IL&P is to sell its agricultural finance unit to Rabobank. There is quite a bit of uncertainty around the future of IL&P’s banking unit, with some people arguing that ptsb will remain as a ‘third force’ in Irish banking, while others (including myself) don’t see an independent future for it. Seeing the bank exiting yet another area strengthens my conviction that ptsb doesn’t have a standalone future. All will be revealed in April when the government makes clear its intentions for the group.


(Disclaimer: I am a shareholder in Bank of Ireland plc and Allied Irish Banks plc) There was more encouraging news elsewhere in Ireland’s financial sector. Bloomberg had a positive piece about funding prospects for the banks, but I wouldn’t get too carried away by that, given how the recent bond swap involved considerable participation by the domestic players. Elsewhere the Central Bank released data for December which confirmed recent comments from the likes of Bank of Ireland and AIB, namely that deposits appear to have stabilised. Again, I wouldn’t read too much into it, given that it relates to such a short timeframe, but it is nonetheless encouraging. In terms of the commercial property sector, CBRE produced an interesting chart that highlights how Dublin has swung from offering among the lowest yields in Europe to the second highest. Hopefully that might flush out some more investor interest for NAMA’s CRE holdings!


(Disclaimer: I am a shareholder in RBS plc) There was a lot of adverse commentary around executive pay at RBS. Most of this commentary was high on rhetoric and low on facts. Allister Heath, the editor of City A.M. (which is always a useful place to go to for insightful editoricals) wrote a good piece that cuts through the noise and gets to the root of the issue here.


(Disclaimer: I am a shareholder in Glanbia plc) Here’s an interesting statistic – 78% of adolescents in urban India consume at least one dietary supplement. This bodes well for the likes of Ireland’s Kerry Group and Glanbia, which have a presence in this space.


In the blogosphere, Wexboy added part III of The Great Irish Share Valuation Project, while Lewis at Expecting Value did up a detailed piece on Nationwide Accident Repair Services.

Written by Philip O'Sullivan

January 31, 2012 at 7:18 pm

One Response

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  1. […] which may sound ridiculous but then again making an approach for a firm with a significant potential pension issue (of sorts) is an unusual move; (v) a possible move to frustrate the Competition Commission […]

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