Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 10/5/2012

with one comment

We’ve seen a deluge of trading updates in the past 24 hours or so. Let’s run through what new insights they’ve provided us with.

 

In the construction sector, Kingspan released a trading update today. The group has made a solid start to 2012, posting an 8% rise in sales in the first four months of the year, “of which Mainland Europe was up 9%, UK up 2% and North America up 10%”. Despite this impressive performance, I note that management caution that: “in general, the year opened with relatively more optimism regarding potential activity levels in some construction markets. This dissipated somewhat as we progressed through the first quarter with sentiment weaker now than at the beginning of the year”. As I’ve stated before, Kingspan has undoubted ‘structural growth’ qualities that set it apart from most construction related stocks, but I don’t see anything in this statement to warrant Kingspan shares pushing significantly ahead of their 13.0x forward earnings multiple in the short term.

 

Elsewhere, Grafton issued a trading statement this morning which revealed diverging trends across its operations. Its UK business appears to be gaining market share, but Irish conditions remain very challenging. It was interesting to see, despite many of its competitors having exited the market, that Grafton’s Irish retail (Woodie’s DIY, Atlantic Homecare) and merchanting (Heitons, Chadwicks) sales were -16% and -9% respectively in the first four months of 2012. This bodes ill for the state of the domestic economy.

 

Glanbia released a trading update yesterday that contained few surprises relative to my expectations. While management is sticking to its full-year guidance, the impact of tough comparatives is shown by a forecast of flat earnings in H1 relative to year-earlier levels. Within the different business areas, nutrition continues to perform strongly, posting a 9% jump in revenue in Q1 2012, but Dairy Ireland’s revenues fell 5% in the same period. Overall, this statement reinforces my view that I was right to ‘step out’ of Glanbia for a while.

 

In other food sector news, Fyffes upgraded its FY EBITA target to €25-30m from the previous €22-27m. This is a great performance by Fyffes in light of the headwind of high fuel prices in particular.

 

UTV Media announced that it has inked a new 5 year bank facility today, which to me reflects the very impressive progress the group has made in terms of rebuilding its balance sheet in recent years.

 

(Disclaimer: I am a shareholder in Trinity Mirror plc) I was delighted by Trinity Mirror’s interim management statement today. While advertising conditions remain under pressure, cash generation remains very strong, as evidenced by the £24m (11%) improvement in its net debt in the year to date. On top of that, the pension deficit has also seen a £54m positive movement since the end of 2011. The combined improvement in Trinity Mirror’s long-term liabilities is equivalent to 100% of its closing market capitalisation from yesterday. This also shows that my narrative around the company appears to be playing out.

 

(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) Speaking of narratives, I was pleased to learn of another containerboard mill closure in Europe, which is supportive for pricing in an industry where Smurfit Kappa is king.

 

In the retail space, Clinton Cards went into administration yesterday. This is bad news for its employees, and for retail REITs – Clinton’s over 700 stores are to be found in most large shopping centres in the UK and Ireland.

 

In the blogosphere, Lewis came up with an interesting way of gauging fashion ‘trends’ – might this offer new insights into trading retail stocks?

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Written by Philip O'Sullivan

May 10, 2012 at 10:05 am

One Response

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  1. […] distributions to shareholders. I am very tempted to increase my position in TNI following its recent good news around its net debt and pension deficit. Share this:ShareTwitterFacebookStumbleUponRedditEmailPrintDiggLinkedInLike this:LikeBe the first […]


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