Market Musings 6/5/2012
(Disclaimer: I am a shareholder in Independent News & Media) Since my last update, Denis O’Brien confirmed that he has increased his stake in Independent News & Media to 29.9%, which is the maximum level he can own without being compelled to bid for the balance of the company. The next largest shareholders are Sir Anthony J. O’Reilly on 13.3% and Dermot Desmond on 5.75%, so half of the company’s shares are held by those three individuals. This will presumably see the Irish Stock Exchange reduce its free float determination on INM and hence the company’s weighting, but if O’Brien’s purchases lead to deeper efforts to reform the group and lift profitability that will hardly matter to the rest of INM’s shareholders.
Aer Lingus announced that it is to pay its maiden dividend as a publicly quoted company. The 3c/share dividend works out at a 3.1% yield based on Friday’s closing price, and with management indicating a willingness to pay the same amount out in each of the next 2 years, that means people buying Aer Lingus at these levels get nearly a 10th of their money back in a little over 2 years, while in terms of the prospects for capital appreciation, Aer Lingus exited 2011 with net cash of €317.6m, which compares to a current market cap of €521m. So for only €204m or so you get Aer Lingus’ owned aircraft, Heathrow landing slots, earnings streams etc. Sounds pretty attractive to me.
Speaking of Aer Lingus shares, one outfit that holds some in its funds is Matterley. I’ve met Henry and George before and I’m a fan of their value-oriented approach. I see they’re still long Aer Lingus after correctly identifying the opportunity in it when it was (and this is astonishing when you think about it) trading at a discount to its net cash. Another Irish listed stock they hold is Dragon Oil, which I traded in and out of earlier this year.
In terms of what to expect over the coming days, we’ve a busy week ahead in Ireland in terms of scheduled corporate newsflow. In a nutshell here are what I’m expecting / looking out for:
- (Disclaimer: I am a shareholder in CRH plc) CRH trading update on Tuesday – This should be a bit of a mixed bag. Recent peer updates reveal improving trends in the United States, but patches of weakness in some of the group’s key European markets. Strong cost take-out efforts should see profitability rise compared to year-earlier levels. I will be looking for: (i) indications on how trading is going as we move into H2; and (ii) any sign of a pick-up in M&A activity.
- United Drug results on Wednesday – Health cutbacks should presumably mean the tone of these results is reasonably subdued, but its very strong balance sheet and proven willingness to invest in expanding its international operations means that there’s an outside chance of an M&A announcement to distract from the underlying performance.
- Glanbia trading update on Wednesday – Tough comparatives due to a blow-out 2011 will presumably mean that the headline growth rate will slow somewhat, but the underlying performance of the group should be quite resilient. Recent signs of a weakening in the dairy market won’t help, but the high-margin nutrition space is clearly going from strength to strength, as evidenced by Nestle’s recent $12bn deal for Pfizer’s infant formula business. I took profits in this name earlier in 2012, and would look to buy back in on any weakness.
- Fyffes trading update on Thursday – I’ll be watching this one for news on (i) pricing; (ii) share buybacks (possibly); and (iii) the success the group is having with passing on high fuel costs. There may well be some read-through for Total Produce, which regular readers know is a core holding (in every sense!) in my portfolio.
- Grafton trading update on Thursday – The main interest here will be on trading conditions in the UK and Ireland. The group has been carefully adding to its portfolio of operations through bolt-on deals in its key markets as well as in its nascent Belgian operation, so there may be an update on this also within the statement.
- Kingspan trading update on Thursday – The group smashed expectations in its FY2011 results, so I wouldn’t be surprised to see another good update from the company this week. While its structural growth qualities are not in any doubt due to its leading position in the insulation space, any sign of an improvement in cyclical demand could be a catalyst to push these shares significantly higher.
- (Disclaimer: I am a shareholder in PetroNeft plc) PetroNeft results on Friday – In my view, the main areas of interest in this release will be: (i) production levels, given recent disappointments on this front; and (ii) financing. What management says about these will presumably prompt a violent share price reaction – either to the upside or the downside!