Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 4/9/2012

with 5 comments

Newsflow has been mercifully light today, which is a help as I’m working on a number of other projects at the moment. In this blog I look at this evening’s Irish Exchequer Returns data, results from Total Produce and a few other bits and pieces that caught my attention since my last update.

 

To kick off with the latest Irish Exchequer Returns data, covering the first 8 months of 2012, these show a big improvement in the reported deficit, which makes for great headlines, but, as I’ve previously cautioned around such releases, tells us little of value about the underlying picture. Total receipts (both current and capital) rose 12% relative to year-earlier levels, while total expenditure (on the same basis) was 14% lower. This produced an Exchequer deficit of €11.4bn versus €20.4bn in the same period last year. However, that deficit figure is meaningless unless you adjust for one-off items and timing issues. On the revenue side, the Exchequer coffers were swelled by €233m from the sale of Bank of Ireland stock last year, while there were no such one-off gains this time round. Recapitalising the listed financial institutions cost €7.6bn in the first 8 months of 2011, but only €1.3bn in the same period this year. So far in 2012 the State has injected €450m into the Insurance Compensation Fund (2011: nil), while Promissory Notes (at least on a reported basis) have cost €25m in the ytd versus €3.1bn last year. Summing these items means that to get the underlying deficit for the first 8 months of 2011 you have to reduce revenues by €0.2bn and lower spending by €10.7bn. This produces a ‘underling’ deficit of €9.5bn in the first 8 months of 2011. The same exercise for the year to date involves lowering total expenditure by €1.8bn, which produces an underlying deficit of €9.6bn between January and August 2012. So, while the headlines suggest the deficit has significantly improved, in reality the underlying fiscal position is in fact little changed. While total revenues have increased (by €2.7bn on a reported basis), this has been eaten up by items such as a €1.6bn increase in interest costs on the national debt, while voted (i.e. day-to-day, nothing to do with bank recaps or interest on the national debt) spending is €0.4bn above year-earlier levels, in contrast to claims that extraordinary levels of fiscal austerity are being imposed on the economy. So, a case of ‘a lot done, more to do’.

 

One potential positive for Ireland Inc, however, is news that at least two European insurance IPOs are planned for later this year – Direct Line and Talanx. Assuming they get off OK it will bode well for the prospects of a sale of the State-owned Irish Life and, in time, (State-owned) IBRC’s 49% shareholding in the old Quinn Insurance business.

 

(Disclaimer: I am a shareholder in Total Produce plc) Total Produce released its interim results this morning. These revealed a 6.7% increase in earnings, while management hiked the dividend by +5% and raised the full-year guided earnings to the “upper end” of the previous 7-8c range.  This is all good stuff, and I suspect the risks for Total Produce lie to the upside as we move towards the end of the financial year. I remain a very happy holder of the stock, and given that it trades on only about 5.5x earnings and has a bulletproof business model, I would consider adding to my position.

 

Staying with the food and beverage sector, UK pub group Greene King said that the Olympics made no difference to its performance. While its overall reported like-for-like sales growth, at 5.1%, is commendable, its comments on the games strengthens my conviction around my recent disposal of shares in one of its peers, Marston’s, after the last of the three clearly identifiable potential catalysts for the sector (Euro 2012, Olympics, Jubilee) had played out.

 

Botswana Diamonds, which I recently profiled, issued an upbeat prospecting update this morning. The shares closed +17.7% in London, so clearly the market liked the look of them. It’s one of the stocks I have on the watchlist at this time.

 

Switching to the support services sector, the venerable Paul Scott profiled UK staffer Staffline. You can read my profile of one of its peers, Harvey Nash, here.

 

Another support services company, albeit a rather different beast, DCC, announced the acquisition of Statoil’s industrial LPG business in Sweden and Norway. This is a sensible bolt-on deal that strengthens DCC’s position in the Scandinavian region.

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5 Responses

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  1. Philip,I am very surprised you have no comment/recommendations on two shares you own. Abbey. Are you taking the bid at 5.30?ICG . Are you selling 25% back to the company? Do you know if Rothwell is selling 25% back? ThanksDave

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    Philip O’Sullivan posted: “Newsflow has been mercifully light today, which is a help as I’m working on a number of other projects at the moment. In this blog I look at this evening’s Irish Exchequer Returns data, results from Total Produce and a few other bits and pieces that caugh”

    davylad

    September 5, 2012 at 8:20 am

    • Hi Dave – thanks for stopping by, and for commenting!

      As has been my policy from day one on this blog, I don’t issue recommendations – https://pdosullivan.wordpress.com/disclosure-policy/ – that is chiefly because I don’t want to end up on the wrong side of any writs!

      To answer your questions:

      1. On Abbey, I’m still weighing it up (I have until lunchtime on Friday to decide). The bid price is pitched below the firm’s NAV which is very disappointing, but against that I have to balance the likely future performance of a stock that will be left with a low free float if Gallagher doesn’t secure a high enough holding to force out minority shareholders. The latter may not, of course, be the end of the world – Readymix stayed on the market with a small free float for years, for example, and in time Gallagher may push for another (presumably higher) bid to complete the take private. Or I could just take the cash now and look for other opportunities. Decisions, decisions!

      2. On ICG, Rothwell has refused to say – http://www.independent.ie/business/irish/shares-in-icg-soar-as-stock-buyback-plan-is-unveiled-3215605.html – if he is tendering his stock. I am disinclined to do so – I get a very good dividend from the shares (I originally bought in at €10) and I like the peace of mind of having a large proportion of my portfolio in a high yielding stock with a strong balance sheet that competes in an effectively duopoly market against a very rational competitor (Stena).

      Philip O'Sullivan

      September 5, 2012 at 8:37 am

  2. Philip.
    What do you recommend we do with our Abbey shares?

    and with our ICG shares?
    Dave

    dave throwit

    September 5, 2012 at 8:26 am

  3. […] the balance of the shares, so the stock will retain its listing. In the run up to the deadline, I had struggled about what decision to take about my own holding in the company. While the bid from Gallagher […]


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