Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 15/2/2012

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As has been the norm of late, while we’ve seen a lot of newsflow around the market, a lot of it is focused on peers of Ireland’s leading plcs. Let’s review what’s been happening on a sector-by-sector basis.


(Disclaimer: I am a shareholder in Allied Irish Banks plc, Bank of Ireland plc and Irish Life & Permanent plc) There has been a lot of news around the Irish financials in recent days. To start off with IL&P, I was interested to read that it has suspended the sale of its UK loanbook along with its subprime business. I find this move more than a little strange given the seemingly buoyant demand for BTL loanbooks in the UK (which is the vast majority of IL&P’s presence in that market) and the fact that IL&P hasn’t written any new business in the UK market since early 2008. The government should be accelerating disposals of non-core assets, not suspending them. Elsewhere, I recently wrote about AIB’s unjustified market valuation. The NPRF has now hired Goodbody Stockbrokers to look into it. Further on in this blog piece I’ve noted some of the consequences of the removal of EU milk quotas in 2015. One potential beneficiary of this, as Bloxham notes, is insurer FBD. Bank of Ireland reports its full-year results on February 20th. Davy have a preview of it here. What I’m looking for in the results are updates on deposits (have recent positive trends been sustained?), de-leveraging (has BKIR continued offloading loans at better-than-expected levels?), margins and the level of provisioning (this will be particularly interesting given recent results from the likes of KBC and Danske Bank).


(Disclaimer: I am a shareholder in Marston’s plc and Tesco plc) In the consumer sector, I read an interesting piece on Marston’s strategy in The Daily Express (yes, really!). It’s a strategy that is reaping rewards, given the group’s rising profitability at a time when UK consumer discretionary spending is under pressure. Speaking of the UK consumer, I bought a position in Tesco earlier this week. While time will tell if my purchase was a little premature, I find being able to pay a single-digit PE multiple and a circa 5% dividend yield for a hugely successful global franchise particularly compelling.


(Disclaimer: I am a shareholder in Glanbia plc) In the food sector, I was interested to read that Dairygold Co-op is contemplating a €130m investment in growing its milk processing capacity. This follows reports that Glanbia is looking into making a similar investment to exploit the structural growth opportunity arising from the removal of EU milk quotas in 2015. I attended a briefing by a Bord Bia executive recently who outlined that China will be a major buyer of Ireland’s expanded milk production so I’m not surprised by Dairygold CEO Jim Woulfe’s comments in the piece linked above. Speaking of emerging markets, Danone’s 2011 results revealed strong growth by its infant nutrition business in particular, which is no surprise given last year’s buoyant performance by Ireland’s Glanbia and Kerry Group (both of which have a significant presence in that area).


(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) I was pleased to see S&P upgrade its credit rating on Smurfit Kappa Group to BB from BB- along with applying a stable outlook to it. While it’s not a major surprise given the progress the group has made in cutting its debt, I am pleased to see that the recent resumption of dividend payments by the group hasn’t dissuaded S&P from this move.


Finally, in the blogosphere, John McElligott ran a screen over the Japanese market that identified a few interesting names. Calum has been looking to the United States for inspiration, doing up great articles on Dreamworks Animation and Family Dollar Stores. John did a feature on Flybe which is worth checking out – my view on it is that if the investment case he sketches for Flybe is one you can buy into, then you should be looking at Aer Lingus, which ticks much the same boxes save for having an even stronger balance sheet and superior operating trends.


Written by Philip O'Sullivan

February 15, 2012 at 1:41 pm

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