Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 5/7/2012

with 2 comments

It’s been a very busy few days on the newsflow front, so once more this blog represents a catch-up on what’s been happening on a sector-by-sector basis.

 

(Disclaimer: I am a shareholder in CRH plc) CRH issued a development update in which it revealed €0.25bn of investment and acquisition initiatives in H1 2012.

 

(Disclaimer: I am a shareholder in Datalex plc) We got some more information on Datalex’s partnership with SITA, which was first disclosed in Datalex’s recent results. Given SITA’s large scale relative to the Irish based travel software provider, this could prove to be very significant for Datalex. I’m still quite bullish on Datalex and see more upside for it from here given how scalable its business model is, and on this note partnerships such as the one with SITA should help open doors for it with more travel companies.

 

(Disclaimer: I am a shareholder in Ryanair plc) Speaking of travel companies, we saw traffic stats released this week by both Ryanair and Aer Lingus. For Ryanair, its June passenger stats provide us with the full picture for Q1 of its financial year. Europe’s biggest LCC carried 5.7% more passengers in Q1 relative to year earlier levels. This compares with guidance of 7% growth in H1, and it should be noted that Q2 is the key period for Ryanair during the year. Aer Lingus’ June passenger stats, released this morning, reveal another strong performance, particularly on the long-haul side, where load factors rose 9ppt to 92.4%.

 

Donegal Creameries issued an AGM statement that revealed a “satisfactory” performance, with management sticking to full-year earnings guidance.

 

TMF wrote a piece on “five smallcaps that could double“. Of the five, I hold Datong, and given its most recently reported NAV of 72.7p a share is well above its share price at the time of writing (31.0p) I think its inclusion on the list is more than warranted, provided that it can deliver on its promises of a recovery in revenues and earnings.

 

Switching to macro news, taking advantage of the enthusiasm that followed the recent EU summit (although the finer details still need to be worked out), Ireland’s NTMA is issuing €500m of 3 month treasury bills today. Obviously, the amount is very small relative to Ireland’s funding needs (and existing stock of debt), and the maturity is short term (and falls within the Troika’s programme, which removes a lot of the risk for buyers), so while it is a welcome development it is hardly a game-changer for Ireland.

 

Speaking of welcome developments for Ireland, according to Reuters some currency strategists expect sterling to rise against the euro, which is good news on a number of different levels. It makes Irish exports into the UK (which buys a sixth of our exports) more competitive, while for Irish plcs that generate a significant proportion of their revenues in sterling (e.g. Paddy Power, Kingspan, Kerry and DCC) but who report in euro this provides a tailwind for earnings.

 

But to move from welcome developments to unwelcome ones, Ireland’s H1 2012 Exchequer Returns reveal continued grounds for concern about the government’s fiscal trajectory. While much of the media commentary has focused on where the numbers are at relative to expectations, the reality is that there has been no underlying improvement in Ireland’s fiscal position. If you strip out significant one-off items, such as the promissory note, the cost of acquiring Irish Life and the loan to the insurance compensation fund, the underlying deficit for H1 2012, at €7.7bn, is only 1% below the underlying deficit for H1 2011. Annualising that means that Ireland is running an underlying deficit of over €3,000 a year for every man, woman and child in the State.

 

I recently reviewed how my 2012 investment picks have performed. Many of my friends in the UK and Irish investment blogosphere have followed suit, namely: John Kingham, Mark Carter, Wexboy, Mr. Contrarian and Expecting Value. Of course, none of us can be said to be investing with a 6 month time horizon in mind, but at the same time it is useful to revisit how portfolios have performed with a view to discerning what, if any, takeaways can be taken from that in order to refine the investment strategy going forward.

 

Speaking of the blogosphere, Calum did an excellent write-up of Dairy Crest that’s worth checking out.

 

And finally, here is the trailer for the Bollywood film that was partly filmed in Dublin.

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Written by Philip O'Sullivan

July 5, 2012 at 9:35 am

2 Responses

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  1. “none of us can be said to be investing with a 6 month time horizon in mind”

    That’s the one I’m using to justify my poor performance. 😉 To be less harsh on myself, sometimes a company just doesn’t grab the interest of the market. I’m thinking here of my choice of OPTS. I suggested it at a reasonable price, and it’s actually doing quite well for itself operationally. The company is growth-driven, and is delivering some good products. It’s aiming to improve its manufacturing efficiency and margins. What more can an investor do than make what they consider to be a rational choice?

    mcturra2000

    July 5, 2012 at 10:06 am

    • Agreed Mark, well said. It’s one of the main problems I have with many of the managed funds – they are so obsessed with short-term performance that they stick rigidly to the index so the funds’ investors end up paying a premium for something they could replicate with a calculator, a piece of paper and a pencil! Much better to identify good opportunities and patiently wait for the valuation to catch up.

      Philip O'Sullivan

      July 5, 2012 at 10:12 am


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