Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 28/5/2012

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Since my last blog post it’s been a case of the good (Irish plc updates), the bad (financial irregularities) and the ugly (Eurovision).


Origin Enterprises posted a solid Q3 trading update this morning. Underlying revenue is ahead by 7% in the year to date, led by a strong agronomy performance. Its main associates, Valeo Foods and Welcon performed solidly. In terms of the outlook, management says it is: “comfortable with consensus market estimates for an adjusted fully diluted earnings per share of circa 44.5 cent”. I suspect that the risks to that lie to the upside, given that all businesses were at least performing to expectations heading into Q4 (the second half of Origin’s financial year accounts for 85% of FY profits, so management may be playing it somewhat cautious). I like Origin – a lot. Management has done a great job in reshaping the business, merging non-core units with peers to create strong associate businesses that can be sold off in order to realise value in the future while investing capital to support its main farm-related operations, which tap into the structural themes of EU quota removal and rising food demand from emerging markets. One further attraction of its business model is that it is extremely cash generative, and likely to move into a net cash position possibly as early as end-2013 on my estimates (barring any large acquisitions), so if balance sheet safety is your thing, Origin is worth taking a look at.


Elsewhere in the food space Calum wrote an interesting blog about Hilton Food Group. On learning that it has 90% exposure to only two customers I became immediately nervous about it, due to the risk that margins could be squeezed ever-tighter by its key accounts.


Diageo bought Brazil’s leading premium spirits brand. While Diageo is not a stock I closely follow, I have noticed that it has been buying up more and more spirits brands, particularly those in emerging markets. Its focus on high-growth markets makes me wonder what Diageo’s longer-term intentions for its Irish beer brands – Guinness, Harp, Kilkenny and Smithwick’s – are. Were any of them to become available at some point in the future, I suspect the cash-rich C&C would be keen to acquire them, not least given the success it has had in cross-selling its cider brands since adding Tennent’s Lager to its portfolio.


(Disclaimer: I am a shareholder in Allied Irish Banks plc) The Financial Times reported that AIB is looking to sell €675m of loans which are primarily secured against Irish commercial real estate. Assuming the report is accurate, the pricing of this will be interesting as a gauge of what people are willing to pay for Irish loan assets at this time. I am in the process of building a model on AIB and I hope to share some detailed views on it with you in due course.


First Derivatives released strong results, with revenue and EBITDA rising 25% and 22% respectively in the year to end-February 2012. The statement contained a number of key positives, including news that its client base has now grown to “91 different investment banks, exchanges, brokers and hedge funds”; the revelation that the firm’s property assets (book value £15.5m) have been independently valued as having a market value of £18.9m; and the firm reported growth not just across all of its business segments (software and consulting) but also all of its key geographies (UK, rest of Europe, America and Australasia). In all, this reads like a company that’s doing all the right things.


The Central Bank of Ireland directed Bloxham Stockbrokers to cease all regulated activities. This is yet another setback for the image of Ireland Inc after a wave of financial scandals in recent years.


Merrion Pharmaceuticals said that its CEO is to step down.


Serial wasters of taxpayers’ money, Cork City Council, spent €259,000 commissioning a map that it has no plans to exhibit. Funny the way ‘austerity’ hasn’t seen a halt to white elephants like that.

Written by Philip O'Sullivan

May 28, 2012 at 5:18 pm

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