Market Musings 5/6/2012
It’s been a very quiet few days as the Jubilee has seen UK markets shut for the first two days of this week, and with most Irish stocks dual-listed in London Ireland has offered little by way of business news also. However, what little there has been is quite significant. Let’s take a look at what’s been going on.
We got the latest Irish Exchequer Returns data, for the first five months of 2012, this evening. While at a headline level the deficit has narrowed to €6.5bn versus €10.2bn in the same period last year, as ever the devil is in the detail. Last year’s deficit was swelled by a promissory note payment of €3.1bn (2012 ytd: nil), while this year’s deficit is flattered by €1bn in Central Bank surplus income (versus zero in the same period last year) and negatively impacted by a €0.4bn ‘loan’ into the insurance compensation fund (again, zero in the same period last year). Adjusting for these three factors means that the underlying deficit for the first five months of 2012 is €7.1bn, which is unchanged from the €7.1bn ‘underlying’ deficit in the first five months of 2011. Drilling down deeper into the data, we see that voted government spending, which is day-to-day spending on schools, hospitals etc. and nothing whatsoever to do with bank recaps or interest payments on the national debt, is actually up 2% yoy, despite widespread talk of ‘austerity’ by many media pundits and politicians. Furthermore, we see that tax revenues have increased by some €1.6bn relative to year earlier levels, but €1.3bn of this has been eaten up by increased interest payments on the national debt. With the Irish government continuing to spend like a drunken sailor, it is inevitable that the cost of servicing the national debt will continue to spiral, so there is an sense of ‘running to stand still’ in these Exchequer Returns. Workers are being forced to shoulder increased tax burdens to part-fund (the balance covered by more debt) out of control government spending. With no political party courageous enough to take action to push through the necessary degree of fiscal consolidation it appears certain that taxes will continue to rise, which has the vicious circle effect of discouraging work and investment, thus leading to more pain down the road.
Irish-Swiss baked goods giant Aryzta issued its Q3 interim management statement today. Underlying revenue growth slowed sequentially across all key geographies, with Food Europe -2.6% (vs. -1.8% in Q2), Food North America +6.0% (vs. +8.9% in Q2) and Food Rest of World +11.8% (vs +14.2% in Q2). Interestingly, while Aryzta reaffirmed previous guidance of FY EPS of 338c in the year to end-July, there was no mention of the prospects for FY13 (in the H1 results release the company reaffirmed guidance of EPS of 400+ cents in FY13). On the outlook, management noted weak conditions in Europe, but also flagged the benefits of the ongoing ‘self-help’ measures from the ATI programme. The shares finished down 1.7% in Zurich (where the company has its primary listing) today.
Unfortunately, from a weather perspective if nothing else, The Diamond Jubilee of Queen Elizabeth II was a bit of a wash-out, which is bad news for UK listed pub groups, most (if not all) of whom were guiding that it would be one of three bumper events for sales this year (the others being Euro 2012 and the Olympics). I wouldn’t be surprised to see some of the pub groups’ share prices moving lower tomorrow (interestingly, cider maker C&C was -1.2% today in Dublin).
Hot on the heels of its recent investment in Aer Lingus, Etihad bought 4% of Virgin Australia.