Market Musings 10/7/2012
The past few days have been pretty quiet on the newsflow front, which has afforded me the opportunity to work on some financial models. I hope to publish a detailed case study on Smurfit Kappa Group later on this week, so those of you who follow the packaging sector might want to keep an eye out for that.
(Disclaimer: I am a shareholder in Abbey plc) This morning housebuilder Abbey released its FY12 results. While the tone was relatively subdued (it should be noted management has form for conservatism) the numbers themselves were pretty good. The firm completed 310 sales in the 12 months to the end of April, +2% year-on-year. Average selling prices were +4% across the group, as a 14% decline in Ireland, which now only represents circa 8% of turnover, was easily offset by a 7% increase in the UK, which accounts for circa 85% of revenue. The balance of Abbey’s activities are in the Czech Republic. Despite shelling out over €20m on share buybacks and landbank purchases, the group finished the year with net cash of €70.1m (56% of the current market cap), -€8.8m year-on-year. Overall, there’s nothing really in the statement for me to alter my narrative on the company, which is: Abbey is an exceptionally well run company, that is overwhelmingly exposed to the attractive South-East England market, with a very strong balance sheet, trading at an unwarranted 25% discount to its NAV. It’s cheap. I like it and would consider adding to my holding.
Since my last update, Aer Lingus says that it’s considering launching domestic flights in Britain. This serves to remind me of the value of the carrier’s Heathrow slots (it has the third highest number of take-off and landing slots and London’s busiest airport), and also of the opportunity it has to maximise the value of these through careful route management. If it secures the Heathrow-Edinburgh route, this will not be the first time Aer Lingus has operated routes originating and terminating outside of Ireland – it previously had a base at Gatwick Airport, while it currently flies a Washington DC – Madrid route on behalf of United Continental.
(Disclaimer: I am a shareholder in Independent News & Media) In the media space, following its recent shuttering of the Offaly Express, Johnston Press closed another Irish local title, Donegal on Sunday. As I’ve noted before, these unfortunate closures will by default result in market share gains for the likes of Independent News & Media, which publishes 13 local titles in Ireland.
In the blogosphere, John Kingham wrote a detailed case study on UTV Media, which he successfully traded in and out of. I covered the stock back in my analyst days (I feature in John’s case study!) and am quite impressed by the progress the company has made in terms of repairing its balance sheet. If only certain other Irish media groups were as successful when it comes to strengthening their financial position!
Speaking of case studies on highly indebted companies, Lewis took a peek at Premier Foods and rightly (in my view) concluded that the debt structure was unlikely to prove benign to equity investors.