Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 23/5/2012

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It’s been a relatively quiet 48 hours on the newsflow front since my last update, but what little news we’ve seen has been pretty important. Let’s review what’s been happening in the market.


(Disclaimer: I am a shareholder in Ryanair plc) Swedish airline Skyways filed for bankruptcy, making it the second Scandinavian airline after Denmark’s Cimber Sterling to halt operations in a month. Skyways had two hubs, at Gothenburg and Stockholm, both of which are cities where Ryanair has a presence in (albeit not in the same airports) and I assume that Europe’s largest LCC will gain at least some benefit from its demise. Should Ryanair replicate its recent trick in Hungary, where it brought forward the opening of a new base at Budapest to exploit the demise of Malev, and step up its assault on the Scandinavian market, the benefit could be quite significant. Time will tell.


Greencore released very solid interim results, revealing that revenue from continuing activities increased by 9.3% with the all-important Convenience Foods division registering a 9.7% rise. Ahead of the results I said my main areas of focus were on: (i) the progress it was making with the integration of Uniq; (ii) how its expanded US operation is doing; and (iii) the balance sheet. On these points, Greencore says: “The integration of Uniq is progressing well and delivery is in line with our business case”, with the HQ and divisional cost reduction plans successfully executed, while it is “progressing well with the realisation of procurement benefits from our increased scale and with supply chain efficiencies”. In terms of the US, there was little specific detail provided in the statement, with much of the 14.3% revenue growth achieved in that market down to the On a Roll acquisition in December 2010. Switching to the balance sheet, net debt stood at £262.2m. £12.2m of that is attributable to seasonal working capital movements, leading to an ‘underlying’ net debt of £250m. Consensus net debt / EBITDA for FY12 is circa 2.9x, not too troublesome but at the same time towards the higher end of my own risk tolerance (in these troubled times), so it’s not one for me at the moment.


Fiordland raised its stake in IFG plc to just under 24%.


NAMA announced plans to invest €2bn in Ireland “to complete construction work in progress and develop greenfield sites”. This news has been enthusiastically welcomed in some quarters, but I’d be a little bit guarded on it. For starters, details remain a little sketchy, while I also wonder about NAMA’s ability to execute on such a significant step-up in this type of activity in the Irish market (last month it said that only €477m of ‘working and development capital’ approved by NAMA had been drawn down to date, with the majority of this being related to overseas projects). Furthermore this €2bn investment is spread between now and 2016, so the benefits of the plan will be spread over a number of years. My instinct, therefore, is to adopt a ‘wait and see’ approach.


The Cove Energy takeover battle took another twist, with PTT trumping Royal Dutch Shell’s offer.


Written by Philip O'Sullivan

May 23, 2012 at 2:24 pm

Posted in Market Musings

Tagged with , , , ,

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