Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 5/6/2012

with 3 comments

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.


The world’s largest yacht is reportedly under construction at a German shipyard.

Written by Philip O'Sullivan

June 5, 2012 at 7:08 pm

3 Responses

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  1. One other thing not mentioned in your piece which will lead to concern as the year 2012 advances is the VAT take . There has been a substantial rise in the upper VAT level up 2% to 23% . The Government who avoided any income tax rises in this years budget simply has to get €670 Million extra off that Tax rise . That would lead one to believe by the half way stage of the year it should be running somewhere about €290 Million up on last year VAT at the same stage . Oil rises have also helped fuel a rising VAT take here . By end of March the VAT was up €192 Million so more less bang on course . However by the end of April it was back to just €96 Million up . By the end of May it was just €111 Million up so it needs to get a rise of €179 Million before June’s end a very unlikely scenario . On top of that oil prices are beginning to fall again as the world Economy slows down making it even harder for the Government . This will mean , bar a miraculous turnaround over the second half of the year which is very unlikely with the sovereign debt crisis escalating that taxes are going to be raised substantially again in the Budget for 2013 . The Economy won’t handle this and the public mood is getting exhausted already with the New Irish Government so social unrest moves that bit closer which would be calamitous for the Country’s image after 4 years of unrelenting Austerity . All of this is going to happen regardless of whether Ireland ultimately gets turfed out of the Euro anyway . Sad thing is that the Politicians don’t realise that this is the only ling run hope for Ireland Anyway but the Politicians are determined to sacrifice the country and it’s people for their own failing European Political Superstate dreams no matter what the Cost .Yours Sincerely Peter Pipesmoker .

    Peter Pipesmoker

    June 12, 2012 at 1:28 pm

    • Hi Peter, thanks for visiting, and for commenting – you’re very welcome. I would share your concerns about the fiscal position, absolutely. I despair at the lazy analysis that passes for most coverage of the Exchequer Returns – factors such as the late payment of 2011 CT in early 2012 and the central bank surplus being paid earlier than usual have flattered the underlying performance in the “year to date” and this has given rise to excitable comments about where we’re at ‘relative to expectations’ that don’t stack up when subjected to more careful analysis. Regarding the politicians and how wedded they are to a failed strategy, well, let’s just say that you’re preaching to the converted! Looking forward to reading more of your insights here, hopefully!

      Philip O'Sullivan

      June 12, 2012 at 1:41 pm

  2. […] budget should bring in further tax increases, not least given that the government has repeatedly demonstrated a lack of willingness to right-size public spending, which will further limit peoples’ ability to service mortgages. Add a lack of mortgage […]

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