Market Musings 3/9/2012
(Disclaimer: I am a shareholder in Abbey plc) While the macro outlook is challenging, it is interesting to see that two UK focused housebuilders have been the subject of takeover approaches from management in recent weeks. An investment vehicle controlled by Abbey’s Executive Chairman now owns nearly 62% of the company’s shares, with its offer remaining open for acceptances until 1pm (Dublin time) on 7 September 2012. Elsewhere, the Chairman of Redrow has also made a preliminary approach to buy out the firm using a consortium comprising his own investment vehicle and two funds. When management teams, who presumably (!) have access to better information than the likes of you and me, are making such moves, this suggests to me that there is decent value still to be had in the sector.
Staying with UK stocks, I sold out of Marston’s this morning. My reasons for doing so were twofold. Firstly, the three catalysts that had been identified for the stock (The Queen’s Jubilee, Euro 2012 and The Olympics) are all over and I am guessing that the regular newsflow from the many quoted UK pub groups means that the impact of these have all been priced in. Secondly, the shares have increased by over 25% (in euro terms) since I added it to the portfolio earlier this year. You can read about why I was originally attracted to Marston’s here. In terms of where the proceeds are being recycled into (Harvey Nash plc), I will upload a blog later today outlining my rationale for the inclusion of ‘an old friend’ back in the portfolio.
In other food & beverage sector news, tropical produce importer Fyffes today raised its full-year adjusted EBITA guidance to a range of €28-33m versus the previous €25-30m. This improved outlook is based on decent organic growth and FX effects in H1 2012. Extrapolating from the adjusted EBITA of €23.3m Fyffes achieved in the first half of the year and adjusted diluted EPS of 6.48c in the same period, this points to full-year earnings of at least 8.5c, putting the stock on less than 6x earnings, so clearly cheap. Its sister company, Total Produce, which I hold, reports its interim results tomorrow.
(Disclaimer: I am a shareholder in Smurfit Kappa plc) There was a bit of news out of Smurfit Kappa Group since my last update. This morning it announced the launch of a senior secured notes offering, which will raise €200m and $250m, maturing in 2018. The proceeds will be used to repay all of the existing 7.75% senior subordinated notes due in 2015. Given the relatively low rates on offer for similar rated debt at this time, this should, I estimate, shave at least €7m from SKG’s annual interest bill, as well as extending the weighted average maturity of its debt, which reduces the perceived riskiness around the group. In all, a win-win move for Smurfit Kappa. Elsewhere, the group is to invest €28m in a new bag-in-box facility in Spain, which is a further sign of how Smurfit Kappa’s improved financial position is giving it enhanced flexibility on both the M&A and capex fronts.
(Disclaimer: I am a shareholder in Independent News & Media plc) It was confirmed that total Irish newspaper advertising declined 10% in the first 6 months of 2012. Annualising it, and putting in a little bit of a kicker for Christmas related spending, means that it’s still a circa €180m market, so not to be sniffed at despite the confident predictions of certain ‘new media’ devotees who assure me that ‘old media’ is completely toast. While I don’t for one moment dispute that old media is in long-term structural decline, my central thesis on the sector remains that it will not disappear for many years to come, with larger newspaper groups (such as INM) being able to mitigate against the effects of a shrinking market by gaining share as weaker competitors exit the industry. Of course, the extent to which equity investors can benefit from this depends on how successfully INM can prevail over its liabilities, and in this regard I was pleased to read reports of a third bidder entering the fray for INM’s South African unit. The more the merrier, clearly, as this should mean a satisfactory sale price for the business.
In the blogosphere, I was pleased to see the launch of two new blogs by Paul Curtis and Mark Murnane. I’ll be updating the blogroll later today – if there are any other investment and/or economics sites you think I should be following, please suggest them in the comments section below.