Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Australia

Market Musings 1/12/11

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How the year has flown. It’s hard to believe that it’s December already. Less hard to believe is that central banks remain willing to do whatever they deem necessary to keep the show on the road. As I have noted before, such actions are bullish for equities and commodities (especially gold), and bearish for cash and bonds. Or, put more succinctly, this headline sums up what I make of it all.


(Disclaimer: I have an indirect shareholding in DCC plc) Yet another sign of the under-siege UK consumer: Topps Tiles lfl sales were -6.9% yoy in the past 7 weeks, versus -3.8% in the year to Oct 1. On a more positive note, UK DIY group Kingfisher released an update earlier this morning, but what really caught my attention was the factsheet that accompanied the results. Have a look at the buoyant sales figures for winter-related products such as insulation, electric fires and rocksalt. If people are engaging in precautionary buying because last winter’s freezing weather has taught them not to take any chances, this has positive implications for DCC, the largest home heating oil and gas distributor in the UK and Ireland.


And here’s yet another sign that the Chinese property market is in big trouble.


My thesis for some time has been that when China rolls over, so does Australia. Bang on cue, Australian housing approvals have fallen by almost 25% in the space of two months.


(Disclaimer: I am a shareholder in Total Produce plc) There have been further developments around South Africa’s Capespan, with the fruit group confirming that its largest investors are in “talks“. Total Produce is Capespan’s second largest shareholder, with a 20% stake in the group. For a primer on this newsflow, check out some excellent work by Wexboy and ValueandOpportunity. All of my previous entries on Total Produce can be found here.


(Disclaimer: I am a shareholder in AIB plc and Bank of Ireland plc) We got a trading update from AIB yesterday, which while somewhat lacking in detail contained a number of positive signs. AIB referred to a stabilising NIM, stabilising deposits and good progress on deleveraging. Which pretty much mirrors what Bank of Ireland said in its recent update. While the Irish banks are by no means out of the woods yet, and nor is the broader financial sector, they are in my view moving into more interesting territory.


Finally, Greencore reports its FY results next Tuesday. NCB’s Darren Greenfield has a good preview of them here.

Written by Philip O'Sullivan

December 1, 2011 at 5:18 pm

Market Musings 17/9/11

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Since my last update we’ve seen some heroics from the Irish team at the Rugby World Cup, co-ordinated central bank moves, a rogue trader and good news for Greencore.


Probably the biggest news this week was the announcement of co-ordinated central bank intervention by the Fed, BoE, ECB, SNB and BOJ to boost liquidity. In recent months there had been a number of unilateral moves by central banks (the Swiss monetary authority’s move to devalue the franc being one example) so it’s good to see the powers that be working together again. The markets welcomed this liquidity move, which is timely (and, let’s be honest, necessary) given the concerns around European banks.


News of a fresh rogue trader scandal emerged shortly after I finished writing my last entry. In a sign of the way things go these days, the suspect in this case already has a wikipedia entry and a number of fan clubs on Facebook! Disturbingly, his alleged actions go back as far as 2008, which if true raises obvious questions about UBS’ risk management systems and both its internal and external auditors. I was amused to see the ratings agencies, who are always the last to the party, suggest that they may downgrade UBS on the back of this.


We had the folly of Tim Geithner visiting Europe this week to lecture our political overlords, with no hint of irony, on how things should be done. I would concur with Juergen Stark’s comments.


I was drawn into a rather circular debate the other night about the provision of universal benefits in Ireland. We have a situation here where roughly half of the Irish population is in receipt of at least one social welfare payment. Is it any wonder that the total social welfare budget for 2010 (€13.2bn) was more than the government’s total income tax take (€11.3bn)? At a time when the State is teetering on the verge of bankruptcy, we simply cannot continue to support a system where people can qualify for benefits regardless of their means.


(Disclaimer: I am a shareholder in Uniq plc) Turning to corporate news, Uniq released its last-ever set of interim results yesterday. It will shortly be taken over by Irish-headquartered Greencore plc. Shareholders in the latter should be pleased with the strong performance by Uniq’s food-to-go unit, which is the area of most overlap with Greencore’s operations.


Speaking of plcs, Expecting Value had a great blog piece on Barratt Developments, which I’d encourage you to take a look at.


Finally, what an amazing win for Ireland in the Rugby World Cup today! I think it’s only fitting that the last word should go to Ronan O’Gara – it really is “a great day to be Irish”.

Written by Philip O'Sullivan

September 17, 2011 at 5:50 pm

Market Musings 6/9/11

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What an eventful 24 hours. We’ve seen the Swiss roll over, some outstanding research notes, M&A speculation, corporate results and a lionhearted performance by the Irish soccer team!


Obviously, the main news today is that the Swiss National Bank has taken aggressive action to pare the franc’s ascent. The Swissie had benefited from huge inflows from risk averse investors looking to park money in one of the world’s few remaining political and economic safe havens, but this was at the expense of making its exports uncompetitive. Hence, today’s statement came as no surprise (the Swiss had been sabre-rattling in recent weeks).


There is an important lesson from this for investors here. Irish investors have been buying non-eurozone bonds in Switzerland, Norway, Canada and Australia to diversify their assets and/or (let’s be honest) keep surplus funds out of the banks, but not all of these investors have been doing so without being fully appraised of all of the risks. With my usual flawless sense of market timing (!), I dealt with this theme in an article in the current issue of Business & Finance, which you can read here. Note carefully the advice given about currency risk by NCB’s Aengus Wilson, who is one of the most astute private wealth advisers in Dublin.


There have been some excellent research notes doing the rounds over the past day or so. Tullett Prebon published a very damning report on the UK economy – ‘Thinking the unthinkable – might there be no way out for Britain?’ It warns:


Britain’s debts are unsupportable without sustained economic growth…the economy, as currently configured, is aligned against growth


Another great note is from UBS. In a report titled ‘Euro break-up – The consequences”, they examine the financial costs for countries exiting the union. Their view is:


“Our base case with an overwhelming probability is that the Euro moves slowly (and painfully) towards some kind of fiscal integration. The risk case, of break up, is considerably more costly and close to zero probability”


UBS also mentions the following:


“It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war”




So what else has been going on?


(Disclaimer: I am a shareholder in Total Produce plc) We had solid results from Total Produce earlier today. Management reiterated FY earnings guidance of 6.5-7.5c per share. The company has made  €14m worth of “bolt-on” acquisitions since the end of H1, and also says that further share buybacks (it bought back 22m shares last November, or about 6.25% of the shares in issue at that time) remain an option. I really like Total Produce. It’s cheap (taking the midpoint of its guidance it’s on less than 5.5x earnings), it has got a strong balance sheet (net debt/EBITDA was 0.8x at end-2010), it has a stable business model (it is the biggest distributor of fruit and vegetables in Europe, with a reach that enables it to supply multiples across different countries), it has a decent dividend yield (circa 4.5%) and it is spitting out cash (free cash flow for the twelve months ended 30 June 2011 amounted to €29.0m – that’s nearly a quarter of the group’s market cap).


Remember the short-selling ban on European financials?


Reports suggest that CRH may be about to buy a 75% stake in a cement business owned by a Russian oligarch. While we’ll have to wait and see if this comes to anything, it would dovetail with CRH’s growing presence in emerging markets. In addition, it would also help reduce (albeit modestly) its reliance on the fragile Western economies that account for the overwhelming majority of its business. As Goodbody point out, CRH has more than enough firepower for a deal of the scale mentioned in the report.


This evening Ireland’s Finance Minister, Michael Noonan, indicated that GDP forecasts will be cut. Some people on social media sites took this as a sign that he’s softening the public up for a stuffing in this year’s budget, but this is a very shallow analysis that takes no account of the clear deterioration in the economic position of most of Ireland’s biggest trading partners in recent months.


Finally, on a happier note the Irish football team somehow managed to secure a nil-all draw in Russia despite ferocious pressure from the home team. This leaves us on track for a play-off position for the Euro 2012 championships. Richard Dunne and Shay Given were absolutely magnificent in helping to save the team’s bacon (not for the first time), and I think Richard in particular will be pleased by this tweet from Paul McGrath:


“Richard Dunne congratulations The Best performance I have seen from any Irish centre half and that includes myself”

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