Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 2/4/2012

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Just when I thought the volume of newsflow would ease off as we reached the end of the results season, we get another slew of trading updates, placings and news of commercial opportunities!

 

(Disclaimer: I am a shareholder in Irish Life & Permanent plc) IL&P’s results this morning contained few surprises given prior guidance provided by management on impairments and arrears. The loan-to-deposit ratio improved to 227% last year from 249% in 2010, and this is of course miles offside the Central Bank’s target of 122.5% by the end of 2013 (I should note that €500m of deposits from Northern Rock moved into ptsb after the year-end). The net interest margin rose 10bps yoy to 0.96%, helped by rising variable mortgage rates and a greater reliance on low-cost ECB funding. We’ll know by the end of this month what the State’s intentions for the future of the banking unit is. Until we get some clarity on that, I remain inclined to steer clear of the stock (my current position is a residual legacy holding that scarcely seems worth the effort of selling!)

 

(Disclaimer: I am a shareholder in Datalex plc) Friday’s results from Datalex were rather lost in a deluge of news from the financials sector along with Ryanair’s chunky share buyback. Going into them I had forecast revenue, EBITDA and cash of $28.6m, $4.6m and $12.9m respectively. In the event these came in at $28.0m, $4.3m and $12.5m, so a little bit behind me but bang in line with what brokers Davy (revenue of $28.0m, EBITDA of $4.3m) and Goodbody (revenue of $28.5m, EBITDA of $4.3m) had forecast. In terms of my model, not a lot has changed. I now expect revenues of $29.3m and EBITDA of $5.3m in 2012, which is perhaps too conservative given that the company will have at least eight new paying clients this year. Against that I’m a little nervous of how the tough economic backdrop could be impacting demand for a number of its existing clients. Here I would point to the $0.4m provision Datalex booked in its 2011 accounts against its receivable from Spanair, which ceased trading in January. In any event, the model now spits out a valuation of 62c/share (versus the previous 64c / share), which is 24% above where the shares closed at on Friday (50c). Datalex is certainly cheap, at 6.4x 2012 EV/EBITDA (on my estimates) and with the balance sheet bolstered by gross cash of $12.5m (just over a quarter of the market cap) it’s not a stock I’d lose any sleep over. I’m happy to stay long, and would probably top up my position if I realise some gains elsewhere in the portfolio (I’ve as much total market exposure as I’m comfortable with for now).

 

(Disclaimer: I am a shareholder in Playtech plc) Elsewhere in the TMT sector, I note that Playtech is one of three firms shortlisted to provide an online betting platform for Greece’s OPAP, which is Europe’s biggest betting firm. While we’ll wait and see what the outcome of this process is, it’s encouraging to have seen a consistent stream of good news from Playtech of late.

 

(Disclaimer: I am a shareholder in France Telecom plc) In the final bit of TMT related news, I was interested to read that France Telecom’s new low-cost competitor in the French mobile space, Free, appears to be having serious teething problems. This is presumably deleterious to Free’s customer acquisition strategy, and by extension bullish for the likes of France Telecom and Vivendi. I wrote a recent detailed piece on France Telecom here.

 

In the healthcare space, Merrion Pharma released results on Friday afternoon. With revenues, EPS and net cash all declining, the results looked just like you’d expect results put out just before the weekend kicks off to look!

 

(Disclaimer: I am a shareholder in Total Produce plc) In the food sector, I picked up a story from the South African media that said the third biggest shareholder in Capespan, Bidvest, has given up on plans to boost its stake in the firm. The article speculated that either of the two biggest shareholders, Zedar and Total Produce, may buy out Bidvest. Given the strategic importance of Capespan to Total Produce, I would welcome an increase in TOT’s stake in the firm.

 

(Disclaimer: I am a shareholder in PetroNeft) Switching to the energy sector, PetroNeft issued a reassuring update this morning. Following a recent run of disappointments, it was good to see a 36% increase in its reserves while output was steady at 2,300 bopd. So, no surprise to see the shares open strongly this morning. Elsewhere, Providence announced that it is raising $100m to help commercialise its recent oil find offshore Cork and pay down convertible debt.

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Written by Philip O'Sullivan

April 2, 2012 at 8:10 am

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