Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 2/2/2012

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We’ve seen a lot of company announcements, macro developments and a blockbuster IPO announcement since my last update.


(Disclaimer: I am a shareholder in Ryanair plc) To kick off, one of the bull points about Ryanair I noted the last time I mentioned the company was easing competitive pressures, due to the demise of Spanair and, as seems likely, the imminent downfall of Malev. Bloxham’s Joe Gill notes that in addition to Spanair three other European airlines have gone bust in the year to date – Cirrus, Air Alps and Czech Connect. The longer oil stays at these levels the less competition Ryanair will have to face over European skies.


(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) Following the recent DS Smith – SCA deal, there has been more consolidation in the European packaging space. Subject to regulatory approval, Billerud is to pay €130m (7.2x EV/EBITDA) for UPM’s packaging assets. I read a broker note that said taking account of the synergies would put the multiple to 6.0x EV/EBITDA, which is about a 1/3rd premium to the EV/EBITDA multiple that Ireland’s Smurfit Kappa trades on. Leaving aside the valuation (and I think SKG is very cheap), these deals will help to lessen competitive pressure in the industry (and, one assumes, help pricing), so I view this as a win-win for Smurfit.


There was a lot of excitement around the Facebook IPO. Despite being an avid Facebook user, I have serious misgivings about this float. Facebook has 800m active users, so an implied valuation of $90bn values each of these at $112.50. I wouldn’t pay that much for a client base that mainly posts up pictures of crazy nights out and plays Farmville. Forbes has a good piece on the IPO here. And here’s an interesting piece on the merits of Facebook’s advertising service.


Irlandia Investments, the investment vehicle of the Ryan family (of Ryanair fame) appears to be giving Merrion Pharmaceuticals a dig-out.


I’ve previously written about Ireland’s glut of airports. Hence, I am not surprised to read that Galway Airport may cease trading over the coming days. Assuming it does close down, this will have a marginal benefit (the airport only handled 160,000 passengers in 2010) on Ireland West Airport Knock (83km away, according to Google Maps) and Shannon Airport (79km away).


(Disclaimer: I am a shareholder in Irish Continental Group plc) Staying with the transport space, part-taxpayer funded Fastnet Line confirmed that it is to close down. The company, which operated a loss-making ferry service between Cork and Swansea, had transported 153,000 passengers since its launch in 2010, many of whom would presumably have traveled on the private, unsubsidised and profitable Irish Continental Group’s service between Pembroke and Rosslare had Fastnet not been in operation. So, while Fastnet’s demise is obviously a blow to its workers, a lot of this business will undoubtedly transfer to another Irish company at no further cost to the taxpayer.


Speaking of taxpayers, this evening saw the release of the first set of Exchequer Returns for 2012. Some media outlets are shrieking excitedly about the 17% yoy increase in headline revenue, but this is flattered by a number of factors, such as the late payment of €261m of corporation taxes, expected in December, the effect of the USC on income tax receipts and also the relatively easy comparatives for VAT (retail sales were badly affected 12 months ago by adverse weather conditions). On the expenditure side, there are also a number of one-off items such as a €210m loan to the insurance compensation fund. In all, I wouldn’t read too much into what is just one month’s data.


In the blogosphere, John Kingham took quite a detailed look at Psion that’s worth a look (I don’t know enough about the technology to even begin to consider the merits of investing in it!). Elsewhere, Lewis did up a great piece on Dairy Crest that I’d also recommend you have a read of.


Finally, WordPress tells me that my blog (via several social media platforms) now has 1,000 followers. I’d like to thank you all for your ongoing support and, as ever, please feel free to email and tweet me suggestions on investment related subjects you’d like me to cover on this site.

2 Responses

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  1. […] in 2011, 132k of which passed through Cork. Many of those passengers would have traveled on the now-closed Swansea-Cork service operated by Fastnet Line, and some of this traffic will presumably transfer to the Rosslare-Pembroke (operated by ICG) and […]

  2. […] European packaging sector has traditionally suffered from overcapacity and volatile pricing, but as I have previously noted, in recent times there has been a wave of consolidation in the industry. This should lead to more […]

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