Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 10/6/2012

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The main focus since my last wrap has been the troubling developments in Spain. There is a sense of déjà vu about that for Irish people, especially given the initial hollow denials and now the failure to grasp the nettle about the scale of the problem. It is implausible that Spain, with its circa €1trn GDP, needs ‘only’ €100bn to support its troubled banks, given that Ireland (GDP €161bn) has so far injected over €60bn into its banks (slide 49), not least given that the massive scale of the problems in Spain have been known about for quite some time.


(Disclaimer: I am a shareholder in Independent News & Media plc) The main corporate news in Ireland has been provided by Independent News & Media, whose Chairman and CFO were voted off the board at Friday’s AGM. I can only hope that these changes will prove to be the final events in a battle for control of Ireland’s largest newspaper group that have proven to be a distraction from more pressing issues such as remedying the firm’s excessive debt pile and reshaping its portfolio of assets. On the latter note, it was interesting to read reports that INM’s largest shareholder, Denis O’Brien, favours an exiting of South Africa, where senior ANC politician and wealthy businessman Cyril Ramaphosa is reportedly interested in acquiring the group’s interests in that market. My own preference would be for a sale of INM’s stake in Australasian group APN News & Media, given both that APN is exposed to a far more mature market with limited growth prospects and INM’s minority shareholding means that it has limited control over APN’s cashflows, unlike its wholly-owned subsidiary in South Africa.


(Disclaimer: I am a shareholder in Abbey plc) In recent months I’ve noted positive commentary on the UK housebuilding sector by the listed corporates in that space. Bellway’s interim management statement, released on Friday, continued this trend, with management noting improving reservations, margins and average selling prices. This strengthens my conviction around my holding in Abbey plc, which derives the majority of its profits from South-East England.


Speaking of UK housing, the Department of Energy & Climate Change released some interesting stats about insulation rates. While over the five years to April 2012 some 3m houses had seen cavity wall insulation fitted and 5m had loft insulation fitted, a significant proportion of the UK’s housing stock is still lacking adequate insulation. Some 38% of homes with lofts have no loft insulation, while 40% of houses with cavity walls have no cavity wall insulation. These are addressable markets of 9m and 8m houses respectively, which highlights the structural growth opportunity (in every sense) that’s out there for the likes of Kingspan and SIG.


In the food and beverage sector, this article highlights Diageo’s competitive advantage in the scotch whisky market.


Switching to the banks, Liberum’s Cormac Leech provided some interesting views on the UK financials, which to some extent mirrors my Eurozone-related near-term caution around Bank of Ireland, as expressed in yesterday’s case study. The one thing I would differ from Cormac on is RBS, given that while he is correct to flag its large exposure to Ireland, as I’ve outlined before RBS’ Irish unit (Ulster Bank) has a largely domestically funded balance sheet which mitigates a lot of this risk.


Finally, the Republic of Ireland plays its first game in Euro 2012 against Croatia this evening. This picture of fans at Dublin Airport’s Terminal 2 made me smile.


Written by Philip O'Sullivan

June 10, 2012 at 9:47 am

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  1. […] I am a shareholder in Independent News & Media plc) Following on from my recent blog about INM’s South African unit, The Irish Times ran a piece covering local sentiment towards a possible deal. While I’ve […]

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