Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 13/7/2012

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Newsflow has been relatively light in recent days but it’s essentially the calm before the storm as we move towards next month’s results season.


(Disclaimer: I am a shareholder in Marston’s plc) Since my last update we got some good news out of the UK pub sector. Both Young’s and JD Wetherspoon reported bumper sales during the Jubilee and Euro 2012 period, which presumably bodes well for their sector peers including Marston’s, which I hold. Assuming the London Olympics deliver another lift in sales, we could be looking at upgrades flowing through over the coming months.


(Disclaimer: I am a shareholder in Tesco plc) Speaking of UK consumer facing stocks, Shore Capital cut its forecasts for Tesco, citing concerns about its overseas operations. This is a new threat (at least for me) for the group, but I draw comfort from the comments from Shore’s highly rated analyst, Clive Black, about how its core UK business is stabilising.


(Disclaimer: I am a shareholder in Allied Irish Banks plc and Bank of Ireland plc) There was quite a bit about AIB in the press in recent days. Firstly, the group is reported to have sold a €300m loan portfolio, which is another step in meeting its PLAR requirements, although it should be noted that there is no information in the public domain yet about the discount that these loans were sold at. This morning there was an interview with AIB CEO David Duffy in The Irish Times that’s worth checking out. There’s more chatter in it about the possibility of external investors coming in to the share register from 2014, but I suspect they’ll need more than the ‘high single digit’ returns Duffy mentions to want to get involved – it’s not as if lower risk assets offering superior returns are particularly difficult to find these days. In any event, with AIB capitalised at €29.5bn at the time of writing while its stronger, equivalent sized peer Bank of Ireland is capitalised at just €2.7bn, I think a lot of investors looking at the Irish financials will be wondering why they should opt for AIB when they can buy into a company (i.e. Bank of Ireland) with similar macro exposure and risks (going forward) at a tenth of the price.


Switching to macro news, Argentina is the gift that keeps giving when it comes to dysfunctional economic policies. The latest plan by its President is to ban savers from purchasing US dollars. This follows other bizarre developments, such as prosecuting economists who query ‘official’ inflation estimates and restricting capital flows to the point where Mitsubishi and Porsche get paid in peanuts and wine respectively for their sales into Argentina. There’s also the pointless belligerence towards the Falkland Islands (not least given that Argentine military capabilities haven’t really moved on since 1982 while Britain has new Eurofighters, a Type 45 destroyer and a nuclear submarine in the area) and the theft of Repsol’s assets in the country to take into account. Again I find myself wondering aloud why some people here think we should be emulating Argentine policies!


Written by Philip O'Sullivan

July 13, 2012 at 9:17 am

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