Market Musings 12/4/2012
Both the brokers and the bloggers have provided most of the topics of interest to me in recent days, so let’s focus on them in this update.
(Disclaimer: I am a shareholder in Ryanair plc) Davy Stockbrokers downgraded LCC easyJet to ‘neutral’ yesterday on valuation grounds, saying that the stock is high enough. I wonder might this stance prompt some EZJ holders to switch into RYA, given the former’s recent outperformance?
Speaking of broker downgrades, NCB cut Kerry Group to ‘accumulate’ on valuation grounds yesterday. You can read their rationale for doing so in detail here – it’s similar to the one that prompted me to recently close out my position in Glanbia (at my €5.30/share valuation and forecasts for FY12 Glanbia would be on 9.3x EV/EBITDA, which to me is far from cheap in absolute terms). Staying with the food sector, Donegal Creameries issued what to me looked like solid enough 2011 numbers this morning. It’s not a stock I follow in detail, but I was interested in management’s comments about the rationalisation of Irish dairy processing capacity, which mirrors my previous scribblings on the issue and has clear implications for Kerry and Glanbia. Another thing that interested me was NCB’s morning note, which said that Donegal’s associate, Monaghan Mushrooms, is the world’s second biggest supplier of mushrooms!
(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) I was pleased to see more capacity take-out in the European containerboard space this morning, with news of the imminent closure of two mills by Norway’s Peterson. As any student of economics knows, reducing supply in the industry will prove supportive of pricing in a segment where Smurfit Kappa Group has a circa one-third share of European kraftliner capacity. All other things being equal, a €10/tonne rise in kraftliner prices lifts Smurfit’s profits by circa €15m (which is pretty chunky considering consensus 2012 PBT is just under €290m)
(Disclaimer: I am a shareholder in Datalex plc) In the TMT sector, I was interested to read a post-results note by Goodbody analyst Colm Foley on Datalex plc. He’s opted for 2012 EBITDA and net cash of $6.1m and $15.5m respectively, which is comfortably ahead of my estimates of $5.3m and $13.0m. Of course, as a shareholder I’ve no objections if my estimates are proven to be too conservative! His PT is 70c (mine is 62c), which is well ahead the price at time of writing of 54c.
(Disclaimer: I am a shareholder in Tesco plc) In the blogosphere, Calum did up a detailed piece on Halfords that’s worth a look. He also noticed the latest quarterly letter from Kennox AM is out, which mentions a similar investment case for Tesco to the one that prompted me to recently put 6% of my portfolio into the stock. Elsewhere, Mark Carter did a cracking post asking: ‘How safe are blue chips?‘ which to me is an indictment both of index tracking funds and a lazy buy-and-hold strategy.
Here’s an interesting fact about how technological advancements are boosting efficiency – If a modern-day Macbook Air had the energy efficiency of 1991 computers, its battery charge would last 2.5 seconds.