Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘BT

Market Musings 10/9/2012

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This is a bit of a hotchpotch of what has been catching my eye over the past few days.

 

To kick off with construction, Abbey announced the results of the mandatory offer from Gallagher Holdings. The latter has raised its stake in the housebuilder by 10.7ppt to 72.6%. This is not enough to force a compulsory acquisition of 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 represented a nice exit price on a stock I purchased for only €4.60 a share, it was pitched at a disappointingly wide discount to NAV. In the end, I elected to take the cash, on the grounds that I didn’t want to stick around in a stock that has now arguably moved from ‘quite illiquid’ to ‘extremely illiquid’ (!), which makes it unappealing to many institutional investors. However, I may well re-enter the sector in the not too distant future given that the long-term drivers of growth are very much intact (a very old housing stock, net inward migration, severe pressure on housing in the South-East of England).

 

In the food sector, Investec argues that Premier Foods faces ‘death or glory’ by 2014. Elsewhere, NCB issued very different (in tone) reports on Aryzta and its majority-owned associate, Origin Enterprises. On Origin, NCB argues that weather and FX should provide a tailwind to earnings, while on Aryzta, NCB makes a persuasive argument that it may not hit its 400 cent earnings target for 2013.

 

(Disclaimer: I am a shareholder in Harvey Nash plc) In the recruitment space, SThree released an interim management statement that revealed slowing growth. On an annual basis its gross profits rose 6% in Q3 2012 (in constant currency terms) of its financial year (i.e. to end-August), down from +15% in Q1 and +9% in Q2. Drilling down into the numbers we see it has experienced weakness in both the UK & Ireland and ICT, with other areas performing more resiliently. The slowdown in the headline growth rate was, unsurprisingly, explained by “the difficult macro economic backdrop”, but SThree’s resilient overall performance highlights once more the importance at this time of choosing recruitment stocks that offer diversification (both by industry segment and geographic), an attractive dividend and a strong balance sheet. This is what attracted me to recently buy into one of its peers, Harvey Nash. I hope to find the time to research all of the stocks in the sector that fit this bill over the next while.

 

(Disclaimer: I am a shareholder in Bank of Ireland plc and RBS plc) There were a few items of note in the financials space. I saw a very bullish MarketWatch piece on Bank of Ireland, which served as a reminder that while a lot of the domestic commentary is ‘doom and gloom’ oriented, many international observers are bulled up on Ireland Inc (Franklin Templeton’s bold Irish sovereign debt move is a good example of this, as is this favourable coverage from CNBC). In other sector news, RBS is planning to shut down its precious metals trading unit, while it has also ceased commodities research. The FT also reported that it is nearing a Libor settlement with US and UK authorities, which would remove another legacy overhang from the group, which remains on my watch list. Finally, I offloaded my second biggest holding, Standard Life, which has had a great run of late and is no longer (in my view) in ‘cheap’ territory.

 

(Disclaimer: I am a shareholder in Trinity Mirror plc) I was pleased to see that new Trinity Mirror CEO Simon Fox has been set very demanding bonus targets based on the share price performance of the group. It is good to see a remuneration committee flex its muscles in this regard, especially in a way that ensures investors’ and management’s interests are very highly aligned.

 

In the blogosphere, John Kingham says: “When I look at BT I see a company and an investment that screams mediocrity“.

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Written by Philip O'Sullivan

September 10, 2012 at 2:40 pm

Market Musings 23/9/11

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College deadlines and Arthur’s Day both conspired to prevent me from updating this blog yesterday, which is a pity given the volume of interesting snippets that I’ve come across since Wednesday.

 

I was amused to see this philosophical take on the recent UK riots by the CEO of JD Sports:

 

As the riots showed, there is a strong demand for our products on the High Street

Long-term trends in alcohol consumption is something that has interested me in the past. We’ve seen traditional beers lose market share to spirits, cider and wine for many years now, which has clear implications for the likes of Guinness owner Diageo and Bulmers/Magners owner C&C. This chart from Mike McDonough shows that growth in wine spend in the US has outstripped beer over the past decade.

 

This is an interesting article – BT’s copper wiring is worth more than the group’s enterprise value.

 

Staying with the US, this is a very effective table explaining the US fiscal position in household budget terms. Elsewhere in the States, I note that unemployment among the over-55s stands at levels not seen for six decades.

 

Following on from my last blog, one of my readers sent me this link to some interesting pointers on “Full Tilt Ponzi“.

 

Turning to corporate newsflow, we saw some very strong results from Origin Enterprises yesterday. Earnings growth of 16% was well ahead of consensus of circa 10%. Origin’s outlook statement was more qualitative than quantitative, as you’d expect given its FY12 has only just started. However, it is clear that things are looking up for this company, which is perfectly placed to benefit from the positive conditions in the agri sector.

 

I note that Easyjet increased its full-year PBT guidance from £200-230m to £240-250m yesterday. The company also declared a £150m special dividend. From an Irish perspective there is obvious positive read-through for Ryanair’s quarterly results in November.

 

Speaking of upgrades, Goodbody Stockbrokers raised its forecast for Irish 2011 GDP growth from 0.5% to 1.3%, with the GNP forecast moving from -1.0% to 0%. This revision is solely down to net exports, with domestic demand remaining weak.

 

DCC announced a great deal in the energy space this morning, which will go a long way towards meeting its ambitions of securing 20% of the UK fuel market. Assuming that today’s acquisition and the previously announced Pace deal both secure regulatory approval, these will take the volume of fuel that DCC distributes each year to over 9bn litres. DCC has a consistent track record of delivering high returns from its energy business, and it is one of my preferred stocks at the moment.

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