Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Exchequer Returns

Market Musings 5/6/2012

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It’s been a very quiet few days as the Jubilee has seen UK markets shut for the first two days of this week, and with most Irish stocks dual-listed in London Ireland has offered little by way of business news also. However, what little there has been is quite significant. Let’s take a look at what’s been going on.


We got the latest Irish Exchequer Returns data, for the first five months of 2012, this evening. While at a headline level the deficit has narrowed to €6.5bn versus €10.2bn in the same period last year, as ever the devil is in the detail. Last year’s deficit was swelled by a promissory note payment of €3.1bn (2012 ytd: nil), while this year’s deficit is flattered by €1bn in Central Bank surplus income (versus zero in the same period last year) and negatively impacted by a €0.4bn ‘loan’ into the insurance compensation fund (again, zero in the same period last year). Adjusting for these three factors means that the underlying deficit for the first five months of 2012 is €7.1bn, which is unchanged from the €7.1bn ‘underlying’ deficit in the first five months of 2011. Drilling down deeper into the data, we see that voted government spending, which is day-to-day spending on schools, hospitals etc. and nothing whatsoever to do with bank recaps or interest payments on the national debt, is actually up 2% yoy, despite widespread talk of ‘austerity’ by many media pundits and politicians. Furthermore, we see that tax revenues have increased by some €1.6bn relative to year earlier levels, but €1.3bn of this has been eaten up by increased interest payments on the national debt. With the Irish government continuing to spend like a drunken sailor, it is inevitable that the cost of servicing the national debt will continue to spiral, so there is an sense of ‘running to stand still’ in these Exchequer Returns. Workers are being forced to shoulder increased tax burdens to part-fund (the balance covered by more debt) out of control government spending. With no political party courageous enough to take action to push through the necessary degree of fiscal consolidation it appears certain that taxes will continue to rise, which has the vicious circle effect of discouraging work and investment, thus leading to more pain down the road.


Irish-Swiss baked goods giant Aryzta issued its Q3 interim management statement today. Underlying revenue growth slowed sequentially across all key geographies, with Food Europe -2.6% (vs. -1.8% in Q2), Food North America +6.0% (vs. +8.9% in Q2) and Food Rest of World +11.8% (vs +14.2% in Q2). Interestingly, while Aryzta reaffirmed previous guidance of FY EPS of 338c in the year to end-July, there was no mention of the prospects for FY13 (in the H1 results release the company reaffirmed guidance of EPS of 400+ cents in FY13). On the outlook, management noted weak conditions in Europe, but also flagged the benefits of the ongoing ‘self-help’ measures from the ATI programme. The shares finished down 1.7% in Zurich (where the company has its primary listing) today.


Unfortunately, from a weather perspective if nothing else, The Diamond Jubilee of Queen Elizabeth II was a bit of a wash-out, which is bad news for UK listed pub groups, most (if not all) of whom were guiding that it would be one of three bumper events for sales this year (the others being Euro 2012 and the Olympics). I wouldn’t be surprised to see some of the pub groups’ share prices moving lower tomorrow (interestingly, cider maker C&C was -1.2% today in Dublin).


Hot on the heels of its recent investment in Aer Lingus, Etihad bought 4% of Virgin Australia.


The world’s largest yacht is reportedly under construction at a German shipyard.

Written by Philip O'Sullivan

June 5, 2012 at 7:08 pm

Market Musings 2/5/2012

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Time to take a break from the study and check up on what’s happening in the markets.


This evening Ireland’s Department of Finance released the latest set of Exchequer Returns data, covering the first four months of the year. As happened last month, a lot of commentators seem to be getting very excited about the headline improvement in the deficit. For the first 4 months of 2012 the deficit was €7.1bn versus €9.9bn in the same period of last year. So, a €2.8bn improvement. Actually, no it isn’t. Because there are a number of one-off cash items that need to be adjusted for. Three in particular. Last year’s deficit included a €3.1bn promissory note payment which doesn’t feature in this year’s computation. This year’s deficit includes an outlay of €0.4bn representing a loan to the insurance compensation fund, while this year’s tax receipts are flattered by the receipt of €250m in late corporation tax payments from the end of last year which were received in January. So the Jan-April 2012 headline deficit is a net €150m worse than it should be, making for an underlying deficit of €7.0bn, while the Jan-April 2011 underlying deficit was €6.8bn. In other words, the underlying deficit is marginally worse than it was this time last year. Another important point to note is that voted spending, which is the discretionary part of government expenditure was €15.1bn in the first four months of 2012 versus €14.8bn in the same period last year. So, government discretionary spending is on the rise. And to think that some politicians and commentators maintain that we’re living in an era of savage austerity!


Retailer French Connection, a favourite among the UK value investor community, put a fifth of its stores up for sale. It’s not one that I particularly like given my bearish tack towards UK retail in general and my concerns about leases. The retailer’s 2012 annual report reveals operating lease payments on property of £28.1m and total property lease commitments of £217.2m, the vast majority (>80%) of which expire in over five years time. These are pretty chunky numbers for a company that made pre-tax profits of £5.0m last year. I appreciate that it has net cash of £34.2m but even this isn’t enough to allay my nervousness.


Playtech, which I recently sold out of, released a solid Q1 update this morning. Within it management announced that it is not to pursue the recently announced related party acquisition, opting instead for a licensing deal, while the company is also to pay the chairman £500k to buy out his share options, so that he can be considered independent for the purposes of the UK Corporate Governance Code. Overall, there’s nothing in it that I can see to make me reconsider my recent selling decision.


Kerry Group issued a trading statement at 12pm today in which it maintained FY earnings guidance despite challenging conditions in the Irish and UK consumer foods markets. On the conference call that followed the release management hinted that input price pressures should ease as the year progresses, which is a positive, but of course we’ll have to see if this benefit is countered by still fragile economic conditions in many of its key markets.


(Disclaimer: I am a shareholder in Independent News & Media plc) Australasian media group APN issued a trading update in which the group guided that H1 profit will be marginally behind prior-year levels due to weakness in New Zealand in particular. The group has initiated a strategic review of its assets in that market which could potentially lead to a sale of all of its New Zealand assets. I have previously argued that INM should sell out of APN altogether and if there is buying interest in media assets in that part of the world (as APN acknowledges) I would contend that now would appear to be a good time to try to kick something off.


Bloomberg published an interesting comparison on the Irish and Spanish property crashes.

Written by Philip O'Sullivan

May 2, 2012 at 5:28 pm

Market Musings 2/2/2012

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We’ve seen a lot of company announcements, macro developments and a blockbuster IPO announcement since my last update.


(Disclaimer: I am a shareholder in Ryanair plc) To kick off, one of the bull points about Ryanair I noted the last time I mentioned the company was easing competitive pressures, due to the demise of Spanair and, as seems likely, the imminent downfall of Malev. Bloxham’s Joe Gill notes that in addition to Spanair three other European airlines have gone bust in the year to date – Cirrus, Air Alps and Czech Connect. The longer oil stays at these levels the less competition Ryanair will have to face over European skies.


(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) Following the recent DS Smith – SCA deal, there has been more consolidation in the European packaging space. Subject to regulatory approval, Billerud is to pay €130m (7.2x EV/EBITDA) for UPM’s packaging assets. I read a broker note that said taking account of the synergies would put the multiple to 6.0x EV/EBITDA, which is about a 1/3rd premium to the EV/EBITDA multiple that Ireland’s Smurfit Kappa trades on. Leaving aside the valuation (and I think SKG is very cheap), these deals will help to lessen competitive pressure in the industry (and, one assumes, help pricing), so I view this as a win-win for Smurfit.


There was a lot of excitement around the Facebook IPO. Despite being an avid Facebook user, I have serious misgivings about this float. Facebook has 800m active users, so an implied valuation of $90bn values each of these at $112.50. I wouldn’t pay that much for a client base that mainly posts up pictures of crazy nights out and plays Farmville. Forbes has a good piece on the IPO here. And here’s an interesting piece on the merits of Facebook’s advertising service.


Irlandia Investments, the investment vehicle of the Ryan family (of Ryanair fame) appears to be giving Merrion Pharmaceuticals a dig-out.


I’ve previously written about Ireland’s glut of airports. Hence, I am not surprised to read that Galway Airport may cease trading over the coming days. Assuming it does close down, this will have a marginal benefit (the airport only handled 160,000 passengers in 2010) on Ireland West Airport Knock (83km away, according to Google Maps) and Shannon Airport (79km away).


(Disclaimer: I am a shareholder in Irish Continental Group plc) Staying with the transport space, part-taxpayer funded Fastnet Line confirmed that it is to close down. The company, which operated a loss-making ferry service between Cork and Swansea, had transported 153,000 passengers since its launch in 2010, many of whom would presumably have traveled on the private, unsubsidised and profitable Irish Continental Group’s service between Pembroke and Rosslare had Fastnet not been in operation. So, while Fastnet’s demise is obviously a blow to its workers, a lot of this business will undoubtedly transfer to another Irish company at no further cost to the taxpayer.


Speaking of taxpayers, this evening saw the release of the first set of Exchequer Returns for 2012. Some media outlets are shrieking excitedly about the 17% yoy increase in headline revenue, but this is flattered by a number of factors, such as the late payment of €261m of corporation taxes, expected in December, the effect of the USC on income tax receipts and also the relatively easy comparatives for VAT (retail sales were badly affected 12 months ago by adverse weather conditions). On the expenditure side, there are also a number of one-off items such as a €210m loan to the insurance compensation fund. In all, I wouldn’t read too much into what is just one month’s data.


In the blogosphere, John Kingham took quite a detailed look at Psion that’s worth a look (I don’t know enough about the technology to even begin to consider the merits of investing in it!). Elsewhere, Lewis did up a great piece on Dairy Crest that I’d also recommend you have a read of.


Finally, WordPress tells me that my blog (via several social media platforms) now has 1,000 followers. I’d like to thank you all for your ongoing support and, as ever, please feel free to email and tweet me suggestions on investment related subjects you’d like me to cover on this site.

Market Musings 5/1/2012

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Ireland released its final set of Exchequer Returns data for 2011. The deficit works out at €5,439 for every person in the country. Regular readers of the blog will know well my sense of horror at this position and my view that the fiscal jaws need to be closed a lot faster (and tighter) than what the government’s medium term fiscal strategy proposes. In terms of the public finances, I have noticed over the past year a tendency on the part of certain commentators to suggest that the public finances are in the state they’re in purely because of the cost of bank recaps. While there is no denying that these play a role, let’s take a proper look at what the underlying fiscal position is, based on Exchequer Returns data for 2011.


  1. Total receipts for the year came to €36.8bn. Total current expenditure came to €48.0bn, leaving a deficit on the current account of €11.2bn.
  2. On the capital side, total receipts were €2.5bn and total expenditure came to €16.2bn. This produced a deficit on the capital account of €13.7bn.
  3. The total reported Exchequer deficit for the year was €24.9bn, which is the product of the result of (1) and (2) above.
  4. Contained within the Exchequer’s €36.8bn receipts for the year as a whole are the following: Income from the various guarantee schemes (paid by the banks) of €1.2bn; proceeds of €1.0bn from selling Bank of Ireland shares and bank recap fees of €0.05bn. So a ballpark €2.25bn in revenue came from the banks, leaving underlying revenues at €34.5bn. I am ignoring other taxes paid by the banks as these would have been paid anyway.
  5. Contained with the Exchequer’s €64.2bn spending for the year as a whole are the following: Acquisition of shares in IL&P €2.3bn; Promissory Notes €3.1bn; Bank Recap payments €5.3bn; Contribution to Credit Resolution Fund €0.25bn. This gives a ballpark direct cost of €11bn from the banks, or slightly more than one-sixth of total expenditure. Stripping out this leaves underlying expenditure at €53.2bn.
  6. Taking (5) away from (4) above produces an underlying deficit for the year of €18.7bn. Put another way, roughly 75% of the Exchequer Deficit for 2011 was not directly caused by the cost of bank recaps. Now, obviously, some of the deficit was indirectly caused by the banks e.g. interest payments on borrowings used to bail them out in previous years, while in addition the effect of the banks’ implosion on the state of the economy is clearly very material.


The above analysis is merely offered as a way of illustrating that there are more moving parts to our fiscal position than simply “bailing out the banks”.


Staying on the fiscal theme, Britain’s Defence Secretary says the debt crisis should be considered the greatest strategic threat to the future security of the West. Across the Atlantic, the US is reportedly considering ending its policy of having the resources to fight two major ground wars simultaneously, which is no surprise given the country’s ugly fiscal position. One of the most striking things about the US’ overseas military deployments is how lopsided they are – it makes no sense for the US to have 80 times more troops in Europe than it has in Africa, and neither does it make any sense to have nearly twice as many troops in Germany than in South Korea.


Following on from the bearish tack on Irish house prices I expressed in my last blog, here’s a fine piece by Cormac Lucey on the outlook for same.


Some 500 hedge funds have been attracted to Malta. Given our shared EU membership and the collapse in property costs here, there is no reason why Ireland shouldn’t be trying to attract these sort of companies to the IFSC.


This is an interesting article – Sweden shows Europe how to cut debt and weather the recession.


(Disclaimer: I am a shareholder in Ryanair plc) Switching to equities, Ryanair issued December passenger stats today. Reported traffic was -5%, in line with company guidance for winter of a decline of approximately 5%. However, given that November’s statistics were better than expected, at -8% versus company expectations of -10%, I wonder if there is some potential for outperformance on the passenger side as we head towards Ryanair’s financial year-end in March.


Finally, in the blogosphere John McElligott asks if Eurozone equities offer good value here. In the interests of transparency I should disclose that I own most of the stocks he identifies as being cheap in Ireland, namely: Bank of Ireland, Independent News & Media, Total Produce and Abbey.

Written by Philip O'Sullivan

January 5, 2012 at 5:32 pm

Market Musings 4/11/11

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It has been an extraordinary 48 hours since my last update. Greece’s government flip-flopped on the referendum issue which has given some relief to markets, at the expense of underlining again just how incompetent the Eurozone’s political leadership is. We’ve seen a huge amount of corporate newsflow and further updates on the Irish government’s fiscal strategy.


UK retailers have attracted my attention quite a bit since the start of the year. Regular readers will know how bearish I am on the sector, so while this isn’t an area I’d look to invest in, Lewis at Expecting Value did a good piece on some of the listed REITs that are one way to get exposure to the UK consumer. Elsewhere, Bloomberg published an interesting article about how more companies are hiring lease-breaking specialists, which bodes ill for the UK REIT sector in general.


(Disclaimer: I am a shareholder in RBS plc) Speaking of the UK, RBS released results this morning that were behind expectations, but despite this analysts seem to be taking a glass half-full approach to the stock. I’ve a legacy position in RBS that is horribly underwater, and I have to admit that I have been toying with the idea of doubling/trebling/quadrupling (!) up on my holding in an effort to claw back losses. However, my fears about RBS’ potential losses on European sovereign debt have made me hesitant up to now. It might be one to play once the Euro-madness abates. I’ll wait and see.


Closer to home, the Irish government published its Exchequer Returns data for the first 10 months of the year. The deficit came in at €22.2bn (roughly 15% of GDP) versus €14.4bn in the same period last year. Total Irish government voted spending was only -0.5% in the first 10 months of 2011 versus the same period in 2010. So much for “austerity”. Even more ominously, Ireland’s Exchequer deficit for the first 10 months of 2011 is equal to 83% of the entire tax take during that period. Leading on from this, the Irish government is raising its fiscal consolidation target to €3.8bn from the previous €3.6bn. This should come as no surprise to my readers, given that I sketched the reasons why this was certain to happen here.


The airline sector has thrown up a lot of interesting pointers in the past few days. Aer Lingus says it expects to report full year 2011 operating profit “at the upper end of the range of current market expectations“, which continues the more positive narrative I’ve remarked on before. Elsewhere, IAG (British Airways + Iberia) has announced that it is to buy BMI. This raises an interesting question as IAG currently has 44% of Heathrow slots while BMI has 8.5%. Should competition authorities compel IAG/BMI to shed some of these, I wonder if Aer Lingus would consider putting some of its vast cash pile to work and buy some slot pairs? As things stand Aer Lingus has the 4th highest number of slots (roughly 4%) at Heathrow, behind IAG, BMI and Virgin Atlantic.


In the betting space, Boylesports has bought William Hill’s retail estate in Ireland. While this is only a small number of shops, it is likely to be an incremental positive for Paddy Power, as the fewer people there are making odds, the less competition. I’d an interesting discussion about this on Twitter with a number of my “followers”, and it was interesting to have the Boylesports PR person join the debate, which goes to show that they are very clued in to social media, so well done to Nicola McGeady for her attentiveness!


The ECB’s 25bps rate cut is a small positive for Ireland. I’ve previously done up some back of the envelope calculations on how positive this is, if any of my readers have better data please send it on.


(Disclaimer: I am a shareholder in Datong plc). One of the smallest positions in my investment fund is Leeds based spy gadget maker Datong plc. When I first invested in them I did rather take it for granted that the equipment they produce would be used against ‘Johnny Taleban’ et al. However, I was intrigued to read that London’s Metropolitan Police uses some of its kit to, ahem, “eavesdrop” on people in the UK. Not that this story has done Datong any harm, given that its share price has shot up following this news. No such thing as bad publicity I guess!

Market Musings 7/10/11

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It’s been an extremely busy couple of days in terms of college work, so I’ve been reluctantly neglecting this blog. Hopefully this “catch-up” post will bring me up to speed with all the major newsflow! In this blog I focus on Ireland’s public finances, downgrades (both corporate and sovereign) and some interesting company pointers.


We saw the latest set of Exchequer Returns from the Department of Finance earlier this week, providing a snapshop of Ireland’s public finances to the end of Q3. At first glance, my initial reaction was: “Austerity? What austerity?” Total voted expenditure by the Irish government in the first 9 months of 2011 was €33.4bn versus €33.2bn in the same period last year. And no, this does not include the €10.7bn paid to recapitalise Irish financial institutions in the year to date. Ireland borrowed €20bn in the first 9 months of the year, which will cost a ballpark €1bn a year in interest payments annually, or roughly double the year-to-date spend on the Department of Jobs, Enterprise and Innovation. The longer we delay the necessary fiscal consolidation the more of our budget will be eaten up by interest payments at the expense of frontline services. Seamus Coffey offers some good insights on the Exchequer Returns here.


Staying with Ireland Inc, I was delighted to provide some insights to Portugal’s leading weekly newspaper, Expresso, on Ireland’s economy and the recent move in our bond yields. Speaking of the Irish economy, I note that Dolmen sees a pick up in our GDP growth rate (2011: 0.5%, 2012: 1.1%, 2013: 1.75%) over the medium term. To put our changed fortunes into context, if Dolmen’s growth estimates are correct, by 2013 our GDP will have ‘recovered’ to 2005 levels. They do make the point that ECB rate cuts will help the beleaguered consumer sector, an argument that met with some derision on some social media sites. However, I think that this derision is a little misplaced. Assuming there are 200k tracker mortgages in Ireland and 50bps of ECB easing next year, this will save households nearly €400m in a full year, which is not to be sniffed at, but obviously it’s only an incremental positive when compared to the size of the Irish economy.


We also saw a host of downgrades this week. Moody’s added to Mr. Berlusconi’s problems with a three-notch downgrade of Italy’s credit rating. I smiled at this reaction from IG Index’s David Jones. Moody’s shocked the markets earlier today by downgrading a further 21 banks across the UK and Portugal, which surely has investors wondering about who’s next for the chop.


(Disclaimer: I’m a shareholder in Smurfit Kappa Group plc). On the corporate side, we had a lot of broker activity in the packaging sector. Goodbody’s Donal O’Neill initiated coverage on DS Smith, arguing that its recent price decline creates “an excellent opportunity to buy one of the highest quality names in the sector”. Today his colleague David O’Brien took an axe to DS Smith peer Smurfit Kappa’s numbers, but he softened the blow for this SKG shareholder by noting that there is “a lot [of the negatives] already in the share price”. On this note, Davy offered some interesting valuation perspectives on SKG in its morning wrap yesterday.


(Disclaimer: I’m a shareholder in Datong plc, Abbey plc and Trinity Mirror plc) Turning to UK companies, grim updates from Flybe and Mothercare served up further reminders of Britain’s difficult consumer backdrop, which is a theme I’ve noted throughout the year. I was aghast to see another disappointing update from spy gadget maker Datong, which hockeyed the share price. Mercifully it makes up less than 0.5% of my portfolio! On a more encouraging note, Panmure Gordon had a very interesting observation in their morning note today about Trinity Mirror. Panmure’s well-regarded media analyst Alex DeGroote speculates that, given recent movements in commodity prices, “there may be good news down the road on newsprint cost pressures”, adding that “for 18 months at least, publishers have had to contend with sharp increases in newsprint prices. Going into FY12, we imagine most analysts/investors have again priced in double-digit growth. This may prove over aggressive”. I’m hoping he’s right, but then, regular readers of this blog will be fully aware of my positive bias towards the stock. The last UK stock, albeit one with material Irish operations, I’ll refer to today is housebuilder Abbey, which provided a solid update to the market at its AGM earlier today.


Central Bankers were also in the news this week. The Bank of England is engaging in more quantitative easing, a tactic which Omid Melakan memorably describes as “The last refuge of failed economic empires and banana republics“. The BoE’s measures come to roughly £1,000 for every man, woman and child in the UK. Hardly a sustainable policy, or one that is sterling-friendly (something that Irish people considering moving money out of the euro need to think about).


To finish on a positive note, I see that strategists still foresee the best Q4 performance by stocks since 1998.

Market Musings 7/7/11

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It’s been a busy couple of days, both privately and on the markets. A lot of my time has been taken up with assisting in a flat clearance, which gave me a brief glimpse into what life as a rock star must be like as I watched sofas fly off a 3rd storey balcony!


The Irish government released the latest Exchequer Returns, covering the period to the end of June. All major headings of tax revenue in Ireland were down yoy in H1 except for income tax, customs and excise receipts, which tells its own story. On the spending side, total voted expenditure was +2% yoy in the first half of the year, while of the 15 diffferent “vote groups”, 6 reported an increase in spending in H111 relative to H110. This, we’re told, is “austerity”. The Exchequer deficit was €10,828,463,000 in H1, or €2,364 for every man, woman and child in the country. This is clearly an unsustainable position, and one that will require cutbacks far in excess of what the government is currently planning if we are to stabilise the public finances. Constantin Gurdgiev has a further analysis of the data here.


There was a lot of Irish corporate news as well. Tullow Oil revealed that its Ghanaian operations are now producing 80k barrels of oil per day, up from 70k in May, and this will rise to 120k by August. Management also reiterated its FY capex goals.


(Disclaimer: I’m a shareholder in CRH plc) CRH issued a development update for H1 yesterday, in which it revealed €0.2bn of spending in the first 6 months of the year on 21 acquisition and investment initiatives. CRH has also agreed to buy VVM which will take ytd spend to circa €0.3bn. While the domestic brokers seemed broadly happy with this, I had hoped that the company would have done more on the development front, especially given its sector-leading balance sheet.


(Disclaimer: I’m a shareholder in PetroNeft plc) PetroNeft has been a drag on my portfolio this year, but its shares rallied strongly on the back of its latest operations update, in which it revealed that it has encountered 18.5m of net pay (its thickest ever) at the Lineynoye 206 well. This bodes well for its revised development strategy, but prudence tells me to wait for further positive results before increasing my exposure to this stock.


(Disclaimer: I’m a shareholder in Total Produce plc) I was interested to see that fruit distributor Capespan, in which Ireland’ s Total Produce has a 12% stake, has received a takeover approach. Bloxham’s Joe Gill has a good piece on it, and I note in particular the big PE premium that the bid for Capespan (13x) is pitched at relative to Total Produce’s rating (5.3x). I like Total Produce’s business model – it’s a very stable and defensive company, with good cashflow generation (operating cashflow/underlying EBITDA was 83% in 2010) and a strong balance sheet (net debt/EBITDA 0.8x at the end of 2010). It’s also Europe’s biggest fruit and vegetable distributor, moving over a quarter of a billion cases of fresh produce from 88 locations each year, but given how fragmented the market is (its market share is a mere 5%) there are plenty of opportunities for it to pick up rival companies and squeeze earnings-enhancing synergies out of them. Hopefully the Capespan valuation might attract some buying interest in Total Produce!


On the international equities side, I was interested to see a profit warning from CSM, the world’s largest bakery products group, which was due to rising agri-input prices.  This is a topic I’ve written about for Business & Finance before, and I suspect that the read-across from CSM is negative for Ireland’s Aryzta. Some UK oil names got a boost from a welcome u-turn on North Sea taxes from the British government, which had previously appeared hell-bent on endangering the country’s energy security and countless numbers of jobs by making the North Sea uneconomic for many oil producers. Contrarian Investor, one of the main UK share blogs I follow, had a good piece on this here. (Disclaimer: I’m a shareholder in Trinity Mirror plc) I had mixed emotions over one of my holdings this week. The value of my shareholding in Trinity Mirror increased by over 16% yesterday after a slew of firms stated that they are boycotting the News of the World following revelations about phone tapping. This is positive news for the NotW’s competitor The Sunday Mirror, but I would prefer if the background to this share price rise wasn’t so ghastly. The conduct of certain employees of the NotW represents a new low for tabloid “journalism”.


Yet another worrying sign about China? – the Singapore SWF has offloaded its stakes in two listed Chinese banks.


I was astonished to learn that an Irish MEP, Jim Higgins, thinks that Ireland should introduce a national system of ID cards. Apart from the fact that this would pose a grave threat to civil liberties, or that such experiments have failed elsewhere in the past, the cost of such a scheme would be ruinously expensive at a time when Ireland is broke. Not that Higgins cares about how much things cost, it seems.

Market Musings 07/04/11

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Blogging has been non-existent of late as I headed to Cork for a few days both to avoid being disinherited (Mother’s Day!) and due to my guessing, correctly as it turned out, that the markets would be quiet before the expected ECB rate hike announcement.

So what have I learned the past while?

Firstly, I was aghast to read on Zero Hedge that the Federal Reserve has printed $2.5 trillion dollars to create 1,492,000 jobs from the recession trough. That’s $1.7m per job.

This article warns of the dangers in investing in penny stocks. If something appears too good to be true, it almost always is. I have never traded any stock that I’ve come across due to a recommendation from a ramper. A policy I’m not likely to change.

You can read about the world’s 10 strongest liquor brands here. Contrary to the stereotype only one was founded by an Irishman!

I’ve written before about how new media continues to gain market share from traditional media, and this statistic again illustrates the trend. How many Irish TV shows have a greater audience than Facebook on any given day in Ireland? Just one – The Late Late Toy Show.

(Disclaimer: I am a shareholder in Uniq plc). I’ve commented in the past about the need for consolidation among the UK food producers. Uniq, a company which recently completed a historic pension deficit-for-equity swap, announced that it has put itself up for sale. Potential suitors presumably include Ireland’s Greencore, given the product overlap between the two (hence plenty of synergies to squeeze out of a deal), Uniq’s strong relationship with M&S, a retailer that Greencore wants to get more exposure to, and Greencore is I imagine under pressure to cut a deal after being trumped by turkey mogul Ranjit Boparan in the battle to acquire Northern Foods.

I would classify my own investment style as being a mixture of contrarian and value, and the former side was very interested to hear of data compiled by Explorers of London that show that as of March 30th, the value of stocks on loan to short sellers was a paltry $273 bln, the lowest level in 5 yrs. Moreover, a survey by Investors Intelligence puts the Bulls at 57.3% (highest level since since mid-Dec 2010) and the Bears at 15.7% (the lowest level since Dec 2009). The difference of +41.6% is close to the 2007 high of +42.4%. Stats like that given the macro backdrop make me very nervous about market direction.

In my first blog post I noted the proposed $39bn AT&T-T Mobile USA deal. This has been followed by the $11bn acquisition of Vodafone’s stake in France’s SFR by Vivendi. Might these deals herald the start of a new wave of consolidation in the telecoms space?

Exchequer returns data for the first quarter of 2011 was released by the Department of Finance and it made for disappointing reading. While the spin put on it was that the numbers were “broadly in line“, the reality was that they were behind expectations. I was dismayed to read that total headline voted expenditure by the Irish government was +2% yoy in Q1 2011 – despite all of the hand-wringing about cutbacks – while even the political parties failed to lead by example, with State funding to them rising by a staggering 10% in Q1 relative to the same period last year. In addition, I note that Election 2011 cost the State some €13.9m.

Speaking of spendthrift governments, the US confirmed that it will hit its debt ceiling by May 16. Secretary Geithner’s letter to Congress is hair-raising stuff. The US’ current debt? $14.25trn. Another country with troubles, albeit well hidden ones, is China, where the Central Bank raised rates for the fourth time since October. They should have done that before 64m empty apartments were built there.

There was a touch of Groundhog Day about Tuesday, with HMV issuing yet another profit warning – its 3rd in 4 months, while oil, gold and silver all hit new highs. (Disclaimer: I am a shareholder in Ryanair plc) Oil has been messing around with a lot of brokers’ forecasts of late, and I was interested to see Goodbody slash its Ryanair forecasts, after factoring in $120 oil for the unhedged portion of its fuel requirements. That move sees FY13 EPS cut to 31.7c from 41.7c, while FY12 (where more of RYA’s needs are hedged) goes from 33.1c to 32.5c. Goodbody’s fair value on the stock has been cut by 6% to €4.70. Elsewhere within the sector British Airways raised fuel surcharges on return long-haul business class flights to up to £290, a 7 year high.

Those of you interested in gambling stocks might be interested in Davy’s observations from its recent sector conference.

The ECB is expected to raise interest rates in an hour or so, despite the well-documented pressures in Greece, Ireland and Portugal, which has become the third country to receive a bail-out. There’s a lot of confident talk about Spain dodging the need for a bailout, but I am unconvinced about that, given its horrific housing sector, Spain’s recent downgrading of its GDP forecasts and soaring unemployment.

Finally, Goodbody’s Dermot O’Leary has a great presentation from the Irish Debt Dynamics conference held yesterday in London. Amongst other things in it, here are some quotes from the European Commission, the IMF and the now Chancellor of the Exchequer from the good times to show how not even they saw the mess coming:

Ireland’s “budgetary position is sound & the budgetary strategy provides a good example of fiscal policies in compliance with SGP” – EC, 2006

Ireland’s “performance has been underpinned by outward-oriented policies, prudent fiscal policy, low taxes…” – IMF, 2007

Ireland is “a shining example of the art of the possible in long-term economic policymaking” – George Osborne, 2006

And we’re being advised by some of these people now?

Written by Philip O'Sullivan

April 7, 2011 at 10:46 am

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