Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 27/6/2012

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The big news from corporate Ireland this morning is C&C’s Q1 interim management statement. In its first projection for the current financial year, the company sees FY operating profits of €112-118m (last year: €111m). Its core cider brands struggled in Q1, due to poor weather and tough comparatives, but other parts of its portfolio are performing strongly. Regular readers of this blog will recall that a few months ago I wrote that Tennent’s lager appeared to be making headway in pubs here, and this morning C&C revealed a near-50% increase in Tennent’s sales in Ireland as the brand is now available in 1,200 pubs (16% of the total). Overall, this is a pretty much as-expected statement from C&C, but at this early stage of the year it’s hard to make a definitive call on the full-year outlook (who knows, we could have an excellent July and August on the weather front!). On a more fundamental view, the group has an extremely strong balance sheet (net cash was €68m at the end of its last financial year) and has been doing a good job of managing its portfolio of brands in challenging consumer conditions of late. It’s a stock I like.

 

Elsewhere in the food sector, Glanbia confirmed what’s already in the public domain about the potential restructuring of its Dairy Ingredients Ireland operation, namely that it’s plotting to establish a jv with its majority shareholder, the Glanbia Co-op, to manage this business, which is set to experience a dramatic increase in volumes once EU milk quotas are lifted from 2015. This restructuring would be a positive move for all parties concerned, in that it would free up additional capital for the plc to support its push into the high-growth, high-margin ingredients space while giving the JV the freedom to pursue a strategy that could feasibly create a northern hemisphere version of New Zealand powerhouse Fonterra.

 

(Disclaimer: I am a shareholder in Independent News & Media plc) In the media space, we saw a battle for control of Australia’s Fairfax media group, which could have consequences for INM’s Australasian associate APN News & Media. Elsewhere, UTV Media lost out to Global Radio in the bidding war for GMG’s radio portfolio. However, as I said a few days ago, this has given rise to serious competition concerns, which could potentially lead to other acquisition opportunities for UTV Media et al.

 

In the healthcare space, United Drug made a £13m bolt-on acquisition of a UK medical communications company, which will fit perfectly within its Sales, Marketing & Medical division. This transaction is obviously small from a group context, but nonetheless helps to further diversify United Drug’s revenue streams.

 

(Disclaimer: I am a shareholder in BP plc) Oil behemoth BP did some further portfolio management in recent days, offloading assets in Wyoming and the North Sea for a combined $1.3bn. Throw in the $20-30bn it is likely to receive from a successful sale of its economic interest in TNK-BP and the firm will have a significant war chest to make further acquisitions (or fund a chunky special dividend) with.

 

(Disclaimer: I am a shareholder in RBS plc) The worst of the IT problems that have dogged RBS in recent days appear to be behind the group, and attention is now switching to the fallout. Reuters spoke of a £100m+ bill, but this may prove extraordinarily ambitious, with reports of people being kept imprisoned due to bail money not being processed properly and patients’ medical treatment being imperiled coming to light. Doubtless RBS will be writing a lot of cheques to assuage public anger following this foul-up.

 

There was a lot of excitement around Irish house prices since my last blog post, with the release of official data that show Dublin residential property prices have advanced (marginally) on a month-on-month basis for each of the past three months (national prices were +0.2% mom in May, -15.3% yoy). Despite this recent improvement, residential prices in Dublin, which is going to be the part of the country that leads the market, are still -17.5% on an annual basis (and 57% below the peak) so it seems a little premature to bring out the champagne bottles. The ongoing difficulties in the domestic economy are likely to hold back property prices for some time to come yet, while this December’s 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 credit availability into the mix and I don’t see any obvious catalyst for a sustained improvement in Irish property prices in the near term.

 

In the blogosphere, Lewis wrote about Dart Group, perennial favourite of the value investing blogosphere (albeit not one for me – given that I already have exposure to some of its competitors e.g. Ryanair and Total Produce).

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Written by Philip O'Sullivan

June 27, 2012 at 8:10 am

One Response

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  1. […] tighter supply and it being the economic heart of the country). Overall, I reaffirm my view from last month, namely that I don’t see any obvious catalyst for a sustained improvement in Irish property […]


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