Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Capespan

Market Musings 2/4/2012

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Just when I thought the volume of newsflow would ease off as we reached the end of the results season, we get another slew of trading updates, placings and news of commercial opportunities!


(Disclaimer: I am a shareholder in Irish Life & Permanent plc) IL&P’s results this morning contained few surprises given prior guidance provided by management on impairments and arrears. The loan-to-deposit ratio improved to 227% last year from 249% in 2010, and this is of course miles offside the Central Bank’s target of 122.5% by the end of 2013 (I should note that €500m of deposits from Northern Rock moved into ptsb after the year-end). The net interest margin rose 10bps yoy to 0.96%, helped by rising variable mortgage rates and a greater reliance on low-cost ECB funding. We’ll know by the end of this month what the State’s intentions for the future of the banking unit is. Until we get some clarity on that, I remain inclined to steer clear of the stock (my current position is a residual legacy holding that scarcely seems worth the effort of selling!)


(Disclaimer: I am a shareholder in Datalex plc) Friday’s results from Datalex were rather lost in a deluge of news from the financials sector along with Ryanair’s chunky share buyback. Going into them I had forecast revenue, EBITDA and cash of $28.6m, $4.6m and $12.9m respectively. In the event these came in at $28.0m, $4.3m and $12.5m, so a little bit behind me but bang in line with what brokers Davy (revenue of $28.0m, EBITDA of $4.3m) and Goodbody (revenue of $28.5m, EBITDA of $4.3m) had forecast. In terms of my model, not a lot has changed. I now expect revenues of $29.3m and EBITDA of $5.3m in 2012, which is perhaps too conservative given that the company will have at least eight new paying clients this year. Against that I’m a little nervous of how the tough economic backdrop could be impacting demand for a number of its existing clients. Here I would point to the $0.4m provision Datalex booked in its 2011 accounts against its receivable from Spanair, which ceased trading in January. In any event, the model now spits out a valuation of 62c/share (versus the previous 64c / share), which is 24% above where the shares closed at on Friday (50c). Datalex is certainly cheap, at 6.4x 2012 EV/EBITDA (on my estimates) and with the balance sheet bolstered by gross cash of $12.5m (just over a quarter of the market cap) it’s not a stock I’d lose any sleep over. I’m happy to stay long, and would probably top up my position if I realise some gains elsewhere in the portfolio (I’ve as much total market exposure as I’m comfortable with for now).


(Disclaimer: I am a shareholder in Playtech plc) Elsewhere in the TMT sector, I note that Playtech is one of three firms shortlisted to provide an online betting platform for Greece’s OPAP, which is Europe’s biggest betting firm. While we’ll wait and see what the outcome of this process is, it’s encouraging to have seen a consistent stream of good news from Playtech of late.


(Disclaimer: I am a shareholder in France Telecom plc) In the final bit of TMT related news, I was interested to read that France Telecom’s new low-cost competitor in the French mobile space, Free, appears to be having serious teething problems. This is presumably deleterious to Free’s customer acquisition strategy, and by extension bullish for the likes of France Telecom and Vivendi. I wrote a recent detailed piece on France Telecom here.


In the healthcare space, Merrion Pharma released results on Friday afternoon. With revenues, EPS and net cash all declining, the results looked just like you’d expect results put out just before the weekend kicks off to look!


(Disclaimer: I am a shareholder in Total Produce plc) In the food sector, I picked up a story from the South African media that said the third biggest shareholder in Capespan, Bidvest, has given up on plans to boost its stake in the firm. The article speculated that either of the two biggest shareholders, Zedar and Total Produce, may buy out Bidvest. Given the strategic importance of Capespan to Total Produce, I would welcome an increase in TOT’s stake in the firm.


(Disclaimer: I am a shareholder in PetroNeft) Switching to the energy sector, PetroNeft issued a reassuring update this morning. Following a recent run of disappointments, it was good to see a 36% increase in its reserves while output was steady at 2,300 bopd. So, no surprise to see the shares open strongly this morning. Elsewhere, Providence announced that it is raising $100m to help commercialise its recent oil find offshore Cork and pay down convertible debt.

Written by Philip O'Sullivan

April 2, 2012 at 8:10 am

Market Musings 31/12/2011

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Having been on holidays down the country for much of the past week and having prioritised what little writing time I had on my 2012 outlook (part I and part II), this blog represents a ‘catch up’ on what’s been happening since my last wrap on December 20th. While this is traditionally a quiet time on the markets there have been incidents in the past where companies have tried to sneak out a profit warning just before Christmas or New Year’s Eve, but thankfully we didn’t see a repeat performance by any Irish plc this year!


To kick off with some macro news – in the UK, despite media reports of bumper Christmas sales in some areas, I note that consumer confidence indicators suggest that this optimism may be a little premature. It should be noted that base effects may impact on headline sales figures also, given last year’s weather-related disruption.


In the Eurozone, outgoing ECB board member Lorenzo Bini Smaghi said that QE could become an appropriate tool for the central bank to use if conditions worsen. I have previously stated my belief that the ECB will eventually resort to QE, so I’m not surprised by these comments.


This is an unbelievable statistic – Japan will raise more cash from debt issuance than taxes for a fourth year in a row. Given Japan’s demographics, I would be very reluctant to even consider investing in all but the most short-term Japanese government debt.


(Disclaimer: I am a shareholder in Playtech) The betting sector was in focus in recent days, following reports that the US is easing its hardline stance on internet gambling. We’ve seen reports like this before, so I’m inclined to be a little cautious around them. However, in the event of an easing of restrictions, this would have clear benefits for the likes of 888, Playtech, Digital Entertainment and Ireland’s Paddy Power (which has already inked B2B partnerships in France and Canada).


NCB published a great note on Greencore, noting that while it offers an attractive dividend yield, three key risks (cashflow, pension deficit, concentrated customer base) remain. As an aside, speaking of attractive dividend yields, just a point that keeps coming to mind whenever I dip into investment bulletin boards – it’s amazing how many “income investors” don’t understand that cash flow dividend cover is more important than the dividend yield when evaluating stocks from that perspective. I learned this the hard way as an undergraduate when I invested in Waterford Wedgwood, which was ‘yielding’ around 20% on paper. Within a short period of time the dividend was suspended and I ultimately lost most of my ‘investment’.  Had I been a few years younger it would truly have been a ‘schoolboy error’!


(Disclaimer: I am a shareholder in Total Produce plc) Elsewhere, Total Produce did a bit of housekeeping among its portfolio of investments, swapping its stake in its international jv with Capespan for a bigger shareholding in the South African firm and €8.5m in cash.


(Disclaimer: I am a shareholder in CRH plc) I note that CRH has made yet another bolt-on acquisition, this time in the US, which is the latest example of the firm putting its industry-leading balance sheet to work. I note also the slide in the value of the euro against the dollar to a 15 month lowthis is positive for CRH, which reports in euro and generates 45% of its EBITDA from its Americas division.


(Disclaimer: I am a shareholder in AIB, Bank of Ireland and Irish Life & Permanent) I was pleased to learn that Ireland has lifted its ban on short-selling financial shares. This is a long-overdue move, although the ban did illustrate, as I have shown before, the futility of such restrictions. This may focus some attention on the anomalous valuation of Ireland’s two largest quoted banks – Bank of Ireland (market cap €2.5bn) and its weaker rival AIB (market cap €35.4bn).


Finally, I wish all of my readers a happy, healthy and prosperous 2012!

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 21/11/11

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Origin Enterprises issued a solid trading update earlier this morning. Management said the “performance [is] in line with the group’s expectations in the seasonally quiet first quarter of the 2012 financial year”, adding that it “remains comfortable with consensus market estimates for the full year”, helped by the positive outlook for primary food producers. Of course, much hinges on the performance in the second half of Origin’s financial year, which accounts for 85% of the full-year profitability of the group, but given indications of a further loosening of monetary policies in many of the world’s leading economies, I think the outlook for soft commodities will remain positive, which will translate into clear benefits for Origin, which supplies many key inputs into the farming sector. Given this macro backdrop, and the excellent job management has done in repositioning the group through securing strategic alliances for its food and fishmeal operations and concentrating on its core agri-services and agri-inputs operations, Origin Enterprises is a stock I like.


(Disclaimer: I am a shareholder in Total Produce plc) Staying with the food sector, I uncovered this piece of information regarding Total Produce – in its recent H1 results the group referred to having increased its shareholding in the leading South African fresh produce company, Capespan, without stating by how much it has increased its shareholding. I note that some six weeks or so after this announcement Capespan disclosed that Total Produce has in fact nearly doubled its shareholding in the company to 20%. This helps cement Total Produce’s partnership with its leading provider of citrus, deciduous and stonefruit categories to the European market.


A troubling indicator of the health of Ireland’s retail sector – on Saturday morning I went into the Argos store in the Stephen’s Green shopping centre in central Dublin. Despite Christmas being just over a month away, it had no cashiers on duty at 11.15am, with customer service staff taking payments. If a mass-market chain like Argos needs no cashiers at that hour on a Saturday morning during what is meant to be a seasonally busy time, you’d wonder about how grim things must be for a lot of retailers at this time. Which makes plans to raise the VAT rate by 2% all the more ridiculous. The government should instead be taking a chainsaw to public spending, much of which, as multiple reports from the Comptroller and Auditor General show, disappears into a black hole.


Staying with troubling indicators – how’s this for a statistic around the UK housing sector: The average age of a first time home buyer in England is now nearly 43.


If you’ve any plans to travel to Moscow, you should check this place out.


Finally, on a lighter note, one of my readers flagged this tweet by Martin Geddes:


With the Euro, Germany thought it was getting everyone to adopt the Deutschmark. What has happened instead is that Germany got the Lira.

Written by Philip O'Sullivan

November 21, 2011 at 9:43 am

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