Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Easyjet

Market Musings 6/9/2012

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The most interesting development I’ve noted this week has been the surge in bond issuance by corporates taking advantage of low yields to refinance at cheaper rates and also push out the weighted average maturity of their debt. No less than 3 of the 20 stocks I currently hold have been at this in recent days – Smurfit Kappa Group, France Telecom (which sold 10.5 year bonds yielding just 2.6%!) and RBS. While reducing interest bills and pushing out the maturity date for corporate debt piles are positive moves for plcs (e.g. a tailwind for earnings and lowered perceived risk), I can’t help but wonder if the recent spike in corporate bond sales points to a bubble in that market. Although, with central banks continuing to significantly influence sentiment towards bonds in general this is a bubble that may not pop for some time to come yet.


Switching to specific Irish corporate newsflow, full-year results from CPL Resources – the largest recruitment company in the country with a circa 40% market share – were released this morning. These revealed a resilient performance, with operating profits growing 39% to €10m, while earnings per share rose by a third (helped by a lower number of shares in issue following the recent tender offer). In terms of the outlook, while noting that the market remains “challenging”, management is confident of achieving “further profitable growth in the months ahead”. In all, this is a good set of numbers from CPL. My view on CPL Resources is positive, underpinned by a first-rate senior management team, dominant market share in its home market, a very strong balance sheet (net cash of €28.0m) and a diversified business model (both by geography and by sector).


(Disclaimer: I am a shareholder in Tesco plc) We saw some more distribution channel innovation at Tesco, with the roll-out of drive-through grocery pickups. It will be interesting to see if moves like this help to arrest the decline in Tesco’s UK market share.


In the energy sector, Providence Resources said its 80% owned Barryroe oil field offshore Cork may contain another 1.2bn barrels, bringing the total potential resource to 2.8bn (it should be noted that this is a P10 estimate).


(Disclaimer: I am a shareholder in Ryanair plc) In the transport space, easyJet said that it is to roll out allocated seating across its network from November. This is a significant move and it will be interesting to see if Ryanair, which has experimented with this, follows suit. Speaking of Ryanair, it reported its busiest ever month in August, carrying a record 8.9m passengers, up 9% year-on-year. There has been a lot of media attention given over to Ryanair’s falling load factors (-1ppt to 88%), but I am not especially concerned by that given the impact capacity redeployments (mainly from northern to southern Europe) have presumably had on traffic stats, so I prefer to focus on the positive momentum in total passengers carried. Elsewhere, Aer Lingus reported a fall in ‘mainline’ passengers carried for the second successive month, however, good capacity management kept loads in positive territory.


In the blogosphere Lewis looked at an interesting UK quoted manufacturing company, Renold.

Written by Philip O'Sullivan

September 6, 2012 at 10:58 am

Market Musings 27/7/2012

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Blogging has been extremely light as I’m in the final stages of an internship as part of my MBA studies. However, newsflow has been anything but light! So, this blog represents a catch-up on what has caught my eye whenever I’ve been able to find the time to track what’s been happening in the markets this week.


(Disclaimer: I am a shareholder in Allied Irish Banks plc and PTSB plc) There was a lot of news out of the Irish financials this week. AIB released its interim results this morning. Overall, AIB has made good progress on deleveraging and deposits, but more work is needed on margins and costs. To take those in turn, I was encouraged to see that the LDR has improved by 13 percentage points to 125% since the start of the year, helped by €3bn of deposit inflows and non-core loanbook disposals. However, the net interest margin has worsened to 1.24% (pre-ELG) from the 1.36% seen in H12011. Hence, it was no surprise to hear management guide that it will raise mortgage rates in the autumn. As things stand, AIB is currently loss-making before even taking provisions into account, and the group will have to address this through a combination of rate hikes and cost take-out measures. Elsewhere,  PTSB revealed further details on its restructuring plans, but given its limited new lending ability and shrinking presence in the market I can’t see it being anything other than a marginal player for quite some time to come.


In the energy sector Providence Resources released an exciting update in which it revealed that there may be up to 1.6bn barrels of oil at its Barryroe Field, offshore Cork. Obviously it’s early days yet with this discovery, but it’s a stock that merits taking a look at. Once I’ve completed my internship it’s on my list of stocks to look at in more detail. Elsewhere, its Irish peer Tullow Oil released H1 results that contained few surprises given the level of detail provided in its recent trading update.


(Disclaimer: I am a shareholder in Marston’s plc) UK pub group Marston’s released a solid trading update, which revealed a satisfactory performance despite the recent wet weather.


Sticking with food and beverage stocks, Glanbia announced the $60m acquisition of a US beverage firm, which looks a perfect fit for its nutrition operations. This is another example of Glanbia’s successful forward integration strategy, which looks well placed to deliver strong returns over time.


Another Irish firm on the M&A prowl was United Drug, which acquired a German headquartered contract sales outsourcing firm for €35m, which will fit well within its existing Sales, Marketing & Medical division. An EV/Sales multiple of 0.23x is undemanding for a firm like this, so it looks a good deal to me.


(Disclaimer: I am a shareholder in Ryanair plc) Low-cost carrier Easyjet upped its PBT guidance, despite euro weakness, to a range of 280-300m. Prior to that the consensus was £272m. I assume the read-through from this for Ryanair, which reports numbers on Monday, is positive given that the euro weakness is near-term bullish for it (it generates a third of revenues from the UK, while it hedges its fuel and related USD exposures).


In the construction space, UK builders merchant group Travis Perkins’ interim results revealed a slowing performance in Q2. Management doesn’t see growth returning until 2014, so it’s not a sector I see a pressing need to gain exposure to anytime soon.


(Disclaimer: I am a shareholder in France Telecom plc) There was a lot of news in the telecoms sector. Spain’s Telefonica followed the lead of KPN and cut its dividend. France Telecom released its interim results, in which the firm reiterated its full-year cashflow targets, which is somewhat reassuring. France Telecom is a stock I’ve been negative on for some time and which I am looking to exit in the near future due to its inflexible cost base, intense competitive pressures in its home market and my fear that it will cut its dividend.


In the media space UTV announced that it has broadened its partnership with the English Football Association to broadcast rights around the FA Cup, Charity Shield and selected England internationals.


Ireland’s Central Statistics Office released its latest data on Irish house prices, which provide few grounds for optimism. While a lot of the recent media commentary has focused on monthly moves, I prefer to look at prices on an annual basis, given that month-on-month moves can be distorted by the small number of transactions happening in the market at this time. The latest data show that Irish house prices declined by 14.4% year-on-year in June 2012. This is a fall of a greater magnitude than what we saw in June 2011 (-12.9% yoy) and June 2010 (-12.4% yoy). The picture in Dublin is even worse (prices -16.4% yoy in June 2012) which is particularly concerning given that the capital will lead the eventual recovery in Irish house prices (due to much tighter supply and it being the economic heart of the country). Overall, I reaffirm my view from last month, namely that I don’t see any obvious catalyst for a sustained improvement in Irish property prices in the near term.

Market Musings 13/6/2012

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Since my last update Spain looks like it may shortly be joined by Cyprus in asking for a bailout, making it two more EU countries that have needed external assistance since Ireland voted yes to the “Stability” Treaty – I hope my country isn’t starting to become a contra-indicator!


(Disclaimer: I am a shareholder in Tesco plc) Tesco released its Q1 interim management statement earlier this week. While there was a lot of focus on the performance of individual markets, the bottom line is that Tesco is performing in line with market expectations and the outlook for the full-year remains unchanged. Across the group I was pleased to see an improvement in its Irish sales, which bodes well for the domestic economy here, while the slowdown in Tesco’s Chinese sales growth mirrors the well documented (not least on this blog) pressures in that market. In its key UK market, while conditions remain ‘challenging’, it was comforting to see management describe the performance there as being ‘as expected’. Overall, there’s little within the statement to alter my view on Tesco – it’s clearly going through a rough patch, but trading on less than 9x forward earnings and yielding 5%, and with a relatively strong balance sheet (net debt/EBITDAR was 2.84x at end-FY11) I see limited downside risk to the shares from here. Mind you, some investors have less patience than I, with some giving the CEO a mere 6 months to turn the UK performance around.


(Disclaimer: I am a shareholder in Bank of Ireland plc) We saw a positive update from Bank of Ireland earlier this morning, with the group announcing that it has sold another loan portfolio. To date the Bank is 97% of the way through its €10bn programme of divestments, and it is important to note that these sales have been completed within the PCAR base case assumptions. My recent case study on Bank of Ireland is here.


Structural steel firm Severfield-Rowen dropped a bit of a clanger earlier this week, warning on profits due to cost over-runs on two projects. It is worth noting that, those two mishaps aside, the group is sticking to guidance of a: “strong order book, anticipated full capacity utilisation and good project mix in both the UK and India”. As Severfield-Rowen is a leading indicator for the commercial real estate sector, this update is somewhat reassuring from a macro perspective.


(Disclaimer: I am a shareholder in France Telecom plc)  I was interested to read that France Telecom is preparing to exercise its call option and buy out the other shareholders in video sharing site Dailymotion. Assuming I’m reading the Alexa data correctly, it’s the 99th most visited site in the world, so hopefully FTE will be able to monetise this asset to a level that more than warrants this investment.


(Disclaimer: I am a shareholder in Independent News & Media plc) In a further twist to the ongoing INM saga, the company has lost yet another non-executive director, with David Reid-Scott, who only joined the board in December, standing down. INM’s board now has only four directors on it – Denis O’Brien’s associates Paul Connolly and Lucy Gaffney, along with Frank Murray and CEO Vincent Crowley.


In other media sector news, UTV is one of three parties linked with possible bids for GMG (Guardian Media Group) Radio. A price of £40-45m has been suggested for the assets, which is ballpark 1x sales. According to the RAJAR figures provided on the GMG website, its two brands, Real and Smooth had 46.4m listening hours in Q1 2012, which is a roughly 4% share of all radio, but of course it’s important to note that the share of commercial radio (BBC doesn’t carry advertising) would be around 10%. This compares with commercial radio shares of circa 8% for UTV and 37% for Global. I’m no expert on competition issues around media ownership in the UK, but I’m guessing that UTV would find it significantly easier to get clearance for a takeover of GMG Radio than Global would. UTV, which has a net debt / EBITDA multiple of only 1.9x (at end-FY11 the net debt and EBITDA figures were £54.7m and £28.3m respectively) would have no difficulty in funding a takeover of GMG Radio.


In the energy sector, the wave of M&A activity we’ve seen since the start of 2012 has continued, with Cairn Energy agreeing a $644m takeover of Nautical Petroleum, which is focused on the North Sea. Indeed, that region is a particular area of focus, so whenever I have the time I must put together a comprehensive ‘who’s who’ list of players in that area.


(Disclaimer: I am a shareholder in Datalex plc) We saw a lot of news from the airline sector. EasyJet founder Stelios has teamed up with Lonrho to develop an African LCC, FastJet. Elsewhere, Bloomberg ran an interesting article about how traditional airline booking engine providers such as Sabre and Amadeus are seen by some as: “obsolete middlemen who add costs”.  Sentiments like this could open up opportunities for nimble operators such as Irish listed Datalex plc to win over more customers to add to an already impressive client list.


Argentina’s banks have lost one-third of their US dollar deposits as savers take flight. This is a further consequence of the crazy economic policies being implemented by President Fernández de Kirchner, which I’ve been writing about for some time. One of the main beneficiaries of this is Uruguay – when I traveled to Montevideo last year I was struck by just how many international banks had operations in that town – and I was not surprised to read of rising concerns in Argentina’s political elite about this. Is it any wonder, given the political backdrop, that Argentine households with at least $100,000 in assets hold 74% of their wealth offshore, according to estimates by the Boston Consulting Group. And to think that some people in Ireland think that we should be emulating Argentina’s economic policies!


It’s not just Ireland that has seen these sort of trends – median US household net worth declined by 38% between 2007 and 2010.


Staying with macro news, James McKeigue, who writes for Moneyweek, wrote an interesting piece (which mirrors more than a few of the readings I did for the supply chain management module of my MBA) some time ago about how more Western firms are reshoring operations from China. He flagged a similar article in The Atlantic earlier this week.


Closer to home, ignoring the 230,000 vacant housing units that are in Ireland, local authorities in County Cork are planning a 5,000 home new town. Given the enormous oversupply of homes in Ireland at this time, you’d wonder how such plans would even make it on to the drawing board, much less be given serious consideration.


In the blogosphere, Lewis took a look at Hornby, beloved of model railway enthusiasts everywhere.

Market Musings 12/4/2012

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Both the brokers and the bloggers have provided most of the topics of interest to me in recent days, so let’s focus on them in this update.


(Disclaimer: I am a shareholder in Ryanair plc) Davy Stockbrokers downgraded LCC easyJet to ‘neutral’ yesterday on valuation grounds, saying that the stock is high enough. I wonder might this stance prompt some EZJ holders to switch into RYA, given the former’s recent outperformance?


Speaking of broker downgrades, NCB cut Kerry Group to ‘accumulate’ on valuation grounds yesterday. You can read their rationale for doing so in detail here – it’s similar to the one that prompted me to recently close out my position in Glanbia (at my €5.30/share valuation and forecasts for FY12 Glanbia would be on 9.3x EV/EBITDA, which to me is far from cheap in absolute terms). Staying with the food sector, Donegal Creameries issued what to me looked like solid enough 2011 numbers this morning. It’s not a stock I follow in detail, but I was interested in management’s comments about the rationalisation of Irish dairy processing capacity, which mirrors my previous scribblings on the issue and has clear implications for Kerry and Glanbia. Another thing that interested me was NCB’s morning note, which said that Donegal’s associate, Monaghan Mushrooms, is the world’s second biggest supplier of mushrooms!


(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) I was pleased to see more capacity take-out in the European containerboard space this morning, with news of the imminent closure of two mills by Norway’s Peterson. As any student of economics knows, reducing supply in the industry will prove supportive of pricing in a segment where Smurfit Kappa Group has a circa one-third share of European kraftliner capacity. All other things being equal, a €10/tonne rise in kraftliner prices lifts Smurfit’s profits by circa €15m (which is pretty chunky considering consensus 2012 PBT is just under €290m)


(Disclaimer: I am a shareholder in Datalex plc) In the TMT sector, I was interested to read a post-results note by Goodbody analyst Colm Foley on Datalex plc. He’s opted for 2012 EBITDA and net cash of $6.1m and $15.5m respectively, which is comfortably ahead of my estimates of $5.3m and $13.0m. Of course, as a shareholder I’ve no objections if my estimates are proven to be too conservative! His PT is 70c (mine is 62c), which is well ahead the price at time of writing of 54c.


(Disclaimer: I am a shareholder in Tesco plc) In the blogosphere, Calum did up a detailed piece on Halfords that’s worth a look. He also noticed the latest quarterly letter from Kennox AM is out, which mentions a similar investment case for Tesco to the one that prompted me to recently put 6% of my portfolio into the stock. Elsewhere, Mark Carter did a cracking post asking: ‘How safe are blue chips?‘ which to me is an indictment both of index tracking funds and a lazy buy-and-hold strategy.


Here’s an interesting fact about how technological advancements are boosting efficiency – If a modern-day Macbook Air had the energy efficiency of 1991 computers, its battery charge would last 2.5 seconds.

Written by Philip O'Sullivan

April 12, 2012 at 2:15 pm

Market Musings 27/03/2012

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It’s good to have a wall of positive newsflow to report for a change – let’s see what’s been cheering me up on the markets since my last update.


(Disclaimer: I am a shareholder in Ryanair plc) In the transport sector, I was pleased to see a strong trading update from easyJet yesterday. The low cost carrier now sees a H1 loss of “between £110 million and £120 million compared with the previous expectation of a pre-tax loss of £140 million to £160 million”. There are two reasons for this improved guidance. Firstly, management sees yields rising 10%, versus the previous expectation of an “upper single digits” increase. This has been helped by a number of competitors having exited the market, a theme I have highlighted before. The second factor is that ex-fuel costs have risen by less than expected (+1.5% versus guidance of +3%), helped by benign weather and good cost management. In terms of the read-through for Ryanair, this is all very positive. Ryanair is similarly well placed to exploit the demise of a number of competitors (Spain, where Spanair ceased trading recently, is Ryanair’s biggest market, while the carrier brought forward the opening of a new base at Budapest to exploit Malev’s closure, for example). On the cost side, there is every reason to assume that Ryanair has benefited from the same positive weather effects. Following Ryanair’s strong Q3 results in January I noticed that a number of brokers had pitched their FY12 estimates above the carrier’s revised net income guidance of €480m. In my model I’ve pitched for net income of €492m. Easyjet’s update appears to vindicate that stance.


This Thursday will see the release of FY 2011 results from IBRC – the former Anglo Irish Bank. I will be attending its results presentation, and will be interested to see if management’s targets for the company have changed since its last update. You can read my views from the H1 2011 results presentation here. If you’ve any questions – within reason (!) – that you’d like me to put to management, please post them in the comments section below.


In the oil space, Tullow Oil saw its shares climb 6.6% yesterday following news of a chunky (>20m net pay) oil find in Kenya. After its amazing success in Ghana and Uganda, might lightning strike a third time for this emerging oil giant? Elsewhere in the oil sector, services group Kentz saw its shares rise nearly 7% yesterday on the back of strong results. I was impressed to see Kentz’s backlog increase by 50% in 2011 to US$2,401m, from the US$1,603m seen at the end of 2010. So, like many of its clients, it appears that Kentz has plenty of fuel in the tank.


In the agri sector, Continental Farmers Group reported its full-year results. Their broker, Davy, says CFG’s in-line results were “an excellent achievement“, given the slump in potato prices in Ukraine. While I am attracted to CFG due to the long-term fundamentals around farming, I would want to see a sustained improvement in its cash generation before I’d look to invest in the company.

Written by Philip O'Sullivan

March 27, 2012 at 8:20 am

Market Musings 26/1/2012

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It’s been a busy 48 hours on the corporate newsflow front since my last update. Let’s wrap up on what’s been going on.


(Disclaimer: I am a shareholder in Ryanair plc) To start off, Easyjet issued a strong trading update this morning, revealing a particularly good performance on the revenue side. This tees us up nicely for Ryanair’s results, which are due on Monday – NCB has a good preview of them here. Ryanair has had a decent move of late, rising from €3.42 at the start of November to the current price at the time of writing of €4.13. With continued positive updates from the sector and increasing chatter of one or possibly two €500m special dividends, I wouldn’t bet against this trend continuing.


(Disclaimer: I am a shareholder in both Allied Irish Banks plc and Irish Life & Permanent plc) I note press reports that AIB has told Irish Finance Minister Noonan that it has no interest in taking over IL&P’s permanent tsb banking unit. Given that Noonan effectively controls both companies through the State’s 99%+ stake in the two businesses, I’m not sure that the decision is AIB’s to make! As I recently noted, the State is mulling over its options for IL&P, so we should have a better idea of ptsb’s future within a couple of months. My guess is that ptsb is going to end up being subsumed into either AIB or IBRC (the former Anglo Irish Bank).


(Disclaimer: I am a shareholder in Datong plc) Regular readers will recall that a few weeks ago I did a detailed case study on Datong plc. Within it I noted that the outcome of a patent infringement case would have a material effect on the stock’s valuation. Happily for shareholders in it like myself the outcome was a positive one. Management is guiding that the total costs of it will come in “substantially” below the £0.3m it had provided for in its accounts. Hopefully the shares will now start climbing towards the most recently reported NAV of 70p at least.


There were some interesting movements in IFG’s share register, with Fiordland upping its stake in the company and One51 exiting the register.


This stat grabbed my attention – McDonalds served 1.3bn meals in the UK in 2011 – meaning that on average each Briton ate there 21 times last year.


(Disclaimer: I am a shareholder in Marston’s plc) In the blogosphere, Wexboy released part 2 of The Great Irish Share Valuation Project. I would broadly agree with his views on the most recent additions to his list, save for C&C, which I believe should be trading on a mid-teen PE in line with its international peers. This is something that I hope to look into in more detail later this year. Lewis at Expecting Value did a great write-up on Marston’s – that piece, and indeed the article on the same company I’ve previously highlighted by Richard Beddard, really underlines the quality of analysis that one encounters across much of the UK and Irish blogosphere. Elsewhere, Valuhunter did a stonking write-up on Marks & Spencer and Debenhams that’s worth checking out.

Written by Philip O'Sullivan

January 26, 2012 at 1:15 pm

Market Musings 11/10/11

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It’s been an interesting couple of days since my last blog, with Irish listed stocks in particular giving me a lot to mull over.


Yesterday Dragon Oil announced that it has farmed-in to an offshore prospect in Tunisia. This marks the group’s latest attempts to diversify from its current single producing asset (in Turkmenistan) model. A previous overseas foray, into Yemen, has to date proved disappointing. I like Dragon, due to its strong balance sheet (net cash was an incredible $1.5bn at the end of H1 2011), simple business model centred on growing output from the Cheleken field, from which it has been producing for many years and inexpensive valuation (EV/BOE of circa $2.8). Elsewhere within the energy space, Petroceltic had two positive announcements out yesterday – confirming that it has inked a deal on a new facility with Macquarie and also announcing successful results from its fraccing activities in Algeria. The shares marked up sharply on the back of this newsflow.


Aryzta peer CSM issued a profit warning, citing difficult economic conditions. Aryzta was one of the weakest performers on the ISEQ yesterday, presumably on the back of this announcement, but it should be noted that the Irish-Swiss concern recently issued a solid enough set of results.


Staying within the Irish food space, I note that Fyffes has returned to the markets to buy more of its own shares – in this case acquiring roughly 6% of its outstanding shares on Friday.


(Disclaimer: I am a shareholder in Bank of Ireland plc) In terms of what other bloggers are writing about, my old friend John McElligott has written a great blog post on both Bank of Ireland and FBD. I would agree with his views on both. For me BKIR is a complete punt here, while FBD offers remarkably good value at these levels for investors with a longer-term investment horizon.


Speaking of share recommendations, I was interested to see that my former employers Goodbody have initiated coverage on Easyjet with an “Add” recommendation. They have pitched their estimates well below consensus (5% below in FY12, 18% below in FY13) on macro concerns, which looks reasonable to me given recent updates from the likes of Flybe (the UK accounts for c. 40% of EZJ’s capacity).


A reminder that not all parts of the economy are struggling – Apple announced that pre-orders for its new iPhone 4S topped one million in a single day.


Last, but not least, Reuters has produced this very useful computer model which allows people to “stress-test” European banks under a range of different sovereign debt haircut scenarios.

Written by Philip O'Sullivan

October 11, 2011 at 2:17 pm

Market Musings 27/9/11

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It’s been a very busy couple of days in terms of newsflow. Chief among this is that we’ve seen rumour after rumour about Greece, which hasn’t helped markets. I know it’s stating the obvious, but the sooner a proper resolution to its problems is reached the better.


There has also been a lot of talk about a medium-term return by Ireland to the debt markets. I find this to be fanciful given the troubled backdrop, and note that those excitedly pointing to the way our bond yields have fallen as a way to support this argument neglect to mention that this has been largely driven by ECB purchases of Eurozone bonds (totalling €156.5bn to date!) in the secondary markets. I don’t see Ireland returning to the debt markets before 2014 at the earliest in the absence of EU guarantees or some other mechanism underpinning new debt issuance. In addition, sentiment towards peripheral European countries won’t be helped if this prediction comes good – Pimco sees Europe slipping into recession next year.


I was amused to see “reassuring” comments from grandees in both France and Spain about their banking systems. We had similar pronouncements from some of the powers that be in Ireland before our banks blew up. Here’s then Financial Regulator Patrick Neary’s pitch to reassure the Irish population.


Aryzta issued a solid set of results yesterday. EPS came in about 2% ahead of consensus, while on the outlook the company says: “We believe FY 2012 consensus EPS appears reasonable and our stated earnings goals for 2013 are still attainable”. On the development side, Aryzta said it will spend €100m on three bolt-on acquisitions in Asia (Taiwan, Singapore) and the UK, along with building a new bakery in Malaysia. This development update highlights just how successfully the company has penetrated new markets across North America, Europe and Asia. Aryzta is cheap, trading on just over 8x its targeted FY13 earnings. However, it’s not one for me at this stage given that I see better value elsewhere.


(Disclaimer: I am a shareholder in Ryanair plc). I was also pleased to see a decent upward move in Ryanair – it has gained nearly 10% in the past week as oil has been carried out. It’s a useful reminder of the sensitivity of airlines to movements in energy prices, and also of its hedging qualities given the declines in some of my oil-related holdings! I note that the largest shareholder in its main competitor Easyjet is talking about setting up a new carrier, which marks the latest headache Stelios has caused for EZJ.


In terms of an overall market view, regular readers of this blog know that I am positive on equities. This stance is mainly driven by the the far more attractive yields relative to bonds and cash that shares offer and also the strength of corporate balance sheets relative to sovereigns.  I was pleased to see that legendary fund manager Crispin Odey is also favourably disposed towards equities.


Finally, I was interested to see that many Portuguese citizens are emigrating to the country’s former colonies in search of work.

Written by Philip O'Sullivan

September 27, 2011 at 2:01 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.

Market Musings 12/9/11

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Blogging has been light due to a combination of light newsflow, a ‘choke-point’ in terms of readings to do for my MBA and, most importantly, my having to go to Cork over the weekend to attend the wedding of some dear friends!


So, what has been grabbing my attention since Friday?


From a corporate perspective, this week is all about builders and consumer facing stocks in the UK, with results due from Next, Kingfisher, Dunelm, Barratt Developments and Galliford Try. For a more complete overview of the week ahead, click here. In Ireland, watch out for results from CPL Resources on Wednesday. CPL is Ireland’s biggest recruitment company, hence its comments on the state of the labour market here will be particularly instructive.


There was a woeful article in the weekend press which speculated that Easyjet “may” bid for Aer Lingus. There are a number of glaring errors with this argument. For starters, Easyjet’s biggest shareholder, Stelios Haji-Ioannou, has repeatedly called for the carrier to curb expansion and focus on growing cash generation to fuel dividends. With himself and connected parties controlling at least 37% of Easyjet, it would be hard (if not impossible, as a takeover would presumably require a 75% “special resolution” majority) to get sufficient support for a takeover of Aer Lingus. Leaving that aside, from a strategic perspective, what would Easyjet want with a transatlantic business, Ryanair’s home turf (it has no presence in Ireland) and a big Heathrow (it has no presence at LHR) operation?


We’re nearing the endgame for Greece. This will have negative short-term implications for Ireland, but as I’ve argued before, if the Irish government were to cut spending deeper, and faster, this would remove a lot of the challenges we face.

Written by Philip O'Sullivan

September 12, 2011 at 6:42 am

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