Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 7/7/2012

leave a comment »

(Disclaimer: I am a shareholder in Ryanair plc) Since my last update, two of Aer Lingus’ shareholders came out to say that they will not be supporting Ryanair’s approach for the company. Etihad, which owns just under 3% of the carrier, said “we are not selling“, pledging its support for management, while elsewhere investment fund Matterley, which has a circa €1m stake in Aer Lingus, said Ryanair’s indicated bid level “still undervalues the asset base of the company, before taking account of the valuable slots at Heathrow”, adding “accordingly, the Fund has retained a significant investment”. While these are interesting developments in terms of providing more colour on investors’ intentions, the market is giving us a clear signal on its perception of Ryanair’s chances of success with the shares closing yesterday at €1.07 – some 18% below the price Ryanair says it would be prepared to pay for Aer Lingus.

 

Staying with Irish plcs, investment fund TVC Holdings issued an update at its AGM yesterday. Management note the wide (29%) discount the shares are trading at relative to its NAV, which I feel is unwarranted given its impressive investment record in recent years. Looking ahead, cash-rich TVC says it believes “there are restructuring opportunities in Ireland and the UK where companies with excessive debt need to raise new equity at attractive terms for new investors”. In terms of opportunities within Ireland, I wonder if TVC will look to leverage its experience in the media sector (it is UTV Media’s largest shareholder with an 18% stake) to help out some of the more geared media players here?

 

(Disclaimer: I am a shareholder in Datalex plc) Speaking of Irish TMT stocks, I know that I’ve been pushing the bull case for Datalex for a while now, but even I was taken aback by a piece in last weekend’s Sunday Times. The newspaper interviewed United Continental CEO Jeff Smisek, and in the interview he had a go at what he termed the ‘oligopoly GDSs’ such as Amadeus, saying they had “underinvested in their product, as oligopolies always do”. He went on to say: “Our technology is more potent than theirs and we can’t wait for them to catch up”. And who helps United with its online shopping and reservations worldwide? Step forward Ireland’s Datalex.

 

(Disclaimer: I am a shareholder in RBS plc) There was a lot of news around RBS in recent days. Despite recent setbacks, the bank reaffirmed its target of exiting the APS programme by the end of this year. In theory this will save RBS £500m annually in APS fees, however, the costs of the capital implications of an APS exit are trickier to quantify.  Elsewhere, Bloomberg ran an interesting piece on RBS’ efforts to shrink its non-core loanbook. This is an often overlooked part of the group’s story – since 2008 RBS’ non-core assets have shrunk by 70%, or £238bn, which is an impressive performance given the difficult backdrop. However, offloading the remaining 30% is likely to prove to be more a challenge in the near term given how much of it is concentrated in markets where this is a relative paucity of buyers such as Ireland (Ulster Bank’s share of RBS’ non-core loanbook was £14.4bn at the end of 2011). Overall, I continue to monitor RBS closely but I see no reason, given the present uncertainty around it, to increase my exposure to it just yet.

 

Ireland’s so-called ‘bad bank’ NAMA said that it no longer expects to make a profit. Given this, shall we say, “tempering of expectations”, can we still be confident of IBRC’s (Anglo Irish Bank & Irish Nationwide) guidance on how much it will ultimately cost the taxpayer?

 

(Disclaimer: I am a shareholder in BP plc) Bloomberg yesterday reported that BP’s Russian partners are only willing to buy half of its stake in the TNK-BP venture. Given how much trouble BP has had as a 50% shareholder in that venture, I cannot see a scenario where BP is happy to reduce its holding to a minority one. With Gulf of Mexico related payments nearing their end, a successful departure from TNK-BP would equip BP with the financial firepower to consider significant acquisitions elsewhere.

 

(Disclaimer: I am a shareholder in Abbey and ICG) In the blogosphere, Richard Beddard covered the current focus on income stocks. Given the present uncertainty in the markets, it is unsurprising to see people touting income over the naked pursuit of capital gains at this time.  What I found particularly interesting in his post was the comment about companies’ reluctance to invest. This is a definite concern of mine at present – we’ve seen many cash-rich Irish plcs, including Abbey and ICG, launch share buybacks in recent times – and while this is a ‘low risk’ way of flattering earnings per share, I wonder would shareholders’ interests be better served in the long-run through the money being used to support the expansion of those businesses. In the case of Abbey, distressed landbanks of housing are hardly difficult to find in this market – and Abbey operates across three countries (here, the UK and the Czech Republic). For ICG, might it consider a move for something like the Isle of Man Steam Packet Company, which was taken over by the banks (for which it is presumably a non-core asset!) last year? Or given how many PE deals took place during the boom years in the port infrastructure space, particularly in the UK, might there be some distressed assets there worth picking up?

 

Staying with the blogosphere, John Kingham wrote a good piece asking: “When is a good time to invest in the stock market?“. His words are worth sharing with any retail investors you know – the tragedy of the market is that often it’s the private investor who is last to buy into the rally and first to sell at the trough.

 

And finally, also in the blogosphere, the excellent Kelpie Capital presents the bear case for UK housing.

Advertisements

Written by Philip O'Sullivan

July 7, 2012 at 9:14 am

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: