Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Greene King

Market Musings 4/9/2012

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Newsflow has been mercifully light today, which is a help as I’m working on a number of other projects at the moment. In this blog I look at this evening’s Irish Exchequer Returns data, results from Total Produce and a few other bits and pieces that caught my attention since my last update.


To kick off with the latest Irish Exchequer Returns data, covering the first 8 months of 2012, these show a big improvement in the reported deficit, which makes for great headlines, but, as I’ve previously cautioned around such releases, tells us little of value about the underlying picture. Total receipts (both current and capital) rose 12% relative to year-earlier levels, while total expenditure (on the same basis) was 14% lower. This produced an Exchequer deficit of €11.4bn versus €20.4bn in the same period last year. However, that deficit figure is meaningless unless you adjust for one-off items and timing issues. On the revenue side, the Exchequer coffers were swelled by €233m from the sale of Bank of Ireland stock last year, while there were no such one-off gains this time round. Recapitalising the listed financial institutions cost €7.6bn in the first 8 months of 2011, but only €1.3bn in the same period this year. So far in 2012 the State has injected €450m into the Insurance Compensation Fund (2011: nil), while Promissory Notes (at least on a reported basis) have cost €25m in the ytd versus €3.1bn last year. Summing these items means that to get the underlying deficit for the first 8 months of 2011 you have to reduce revenues by €0.2bn and lower spending by €10.7bn. This produces a ‘underling’ deficit of €9.5bn in the first 8 months of 2011. The same exercise for the year to date involves lowering total expenditure by €1.8bn, which produces an underlying deficit of €9.6bn between January and August 2012. So, while the headlines suggest the deficit has significantly improved, in reality the underlying fiscal position is in fact little changed. While total revenues have increased (by €2.7bn on a reported basis), this has been eaten up by items such as a €1.6bn increase in interest costs on the national debt, while voted (i.e. day-to-day, nothing to do with bank recaps or interest on the national debt) spending is €0.4bn above year-earlier levels, in contrast to claims that extraordinary levels of fiscal austerity are being imposed on the economy. So, a case of ‘a lot done, more to do’.


One potential positive for Ireland Inc, however, is news that at least two European insurance IPOs are planned for later this year – Direct Line and Talanx. Assuming they get off OK it will bode well for the prospects of a sale of the State-owned Irish Life and, in time, (State-owned) IBRC’s 49% shareholding in the old Quinn Insurance business.


(Disclaimer: I am a shareholder in Total Produce plc) Total Produce released its interim results this morning. These revealed a 6.7% increase in earnings, while management hiked the dividend by +5% and raised the full-year guided earnings to the “upper end” of the previous 7-8c range.  This is all good stuff, and I suspect the risks for Total Produce lie to the upside as we move towards the end of the financial year. I remain a very happy holder of the stock, and given that it trades on only about 5.5x earnings and has a bulletproof business model, I would consider adding to my position.


Staying with the food and beverage sector, UK pub group Greene King said that the Olympics made no difference to its performance. While its overall reported like-for-like sales growth, at 5.1%, is commendable, its comments on the games strengthens my conviction around my recent disposal of shares in one of its peers, Marston’s, after the last of the three clearly identifiable potential catalysts for the sector (Euro 2012, Olympics, Jubilee) had played out.


Botswana Diamonds, which I recently profiled, issued an upbeat prospecting update this morning. The shares closed +17.7% in London, so clearly the market liked the look of them. It’s one of the stocks I have on the watchlist at this time.


Switching to the support services sector, the venerable Paul Scott profiled UK staffer Staffline. You can read my profile of one of its peers, Harvey Nash, here.


Another support services company, albeit a rather different beast, DCC, announced the acquisition of Statoil’s industrial LPG business in Sweden and Norway. This is a sensible bolt-on deal that strengthens DCC’s position in the Scandinavian region.

Market Musings 22/1/2012

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Gambling, alcohol, weapons and fossil fuels all feature prominently in this blog, which tells me that ethical investment funds are probably not for me!


(Disclaimer: I am a shareholder in PetroNeft plc) In terms of the oil sector, I felt quite ill on Thursday as I watched PetroNeft’s share price implode on significant volumes. The damage was done by one of its larger shareholders, investment fund Bluegold, dumping its shareholding. I don’t believe that this trade is any specific reflection on PetroNeft as Bluegold has also in recent days sold down positions in Petroceltic, Deo Petroleum and Mediterranean Oil & Gas. I also note this Reuters report from late last year. Unfortunately, the problem for small-cap oilies in general is that there is a view doing the rounds that they are unable to tap funding in these challenging times, so there seems to be a paucity of buyers to step into the breach. However, I can’t help but wonder if small-cap E&P names will resemble coiled springs whose share prices are ready to explode higher until either (i) sentiment and/or the funding environment changes or (ii) large-cap oil stocks start bidding for them as a way of bolstering their reserves at relatively inexpensive prices. Time will tell if my hunch is correct.


Staying with the broader energy sector, Kentz, which I previously was a shareholder in, released a solid trading update. Management see sales and profits marginally ahead of consensus, while net cash at the end of 2011 was an impressive $223m. One that I still have on my watchlist.


(Disclaimer: I am a shareholder in Playtech plc) In the betting space William Hill issued a trading update which contained two things that caught my attention. Firstly, the company said that it is to write down its telephone betting business’ book value (£47m) to zero. Internet displacement strikes again! This leads me on to the second thing that I was interested to learn – in 2011 net revenue in its online unit, which Playtech is a minority shareholder in, grew at over 20% for the second year running. While this was broadly in line with what the brokers I follow were expecting, it is nonetheless reassuring. However, my stance remains that I will look to exit Playtech at a suitable opportunity.


Moving from the bookies to the pub, Richard Beddard did up a good post on Greene King. Regular readers will know that I recently bought shares in one of its competitors, Marston’s. I quite like MARS, well, obviously – I wouldn’t have bought shares in it otherwise! – but I note that Richard also did up a relatively cautious piece on it two years ago which serves as a useful Devil’s Advocate view for when I get around to doing a proper write-up on why I pulled the trigger on it. For now, here is a summary on why I bought Marston’s.


(Disclaimer: I am a shareholder in Irish Life & Permanent plc) The Troika gave Ireland another pat on the back during the week. This has been extensively covered elsewhere, so I don’t propose to go through it in detail here. What did catch my attention from an equity investor’s perspective was the Department of Finance’s comments about Irish Life & Permanent in its press release following the visit. The government will make a decision on IL&P’s “future direction” by the end of April, which tells me that a relaunch of the previously aborted sale process around Irish Life will likely go ahead in the near future, possibly as early as when contracts are agreed with AIB to finalise Irish Life as the latter’s new insurance jv partner. The recap of Irish Life & Permanent is due to be completed by the end of June, so whether the money comes from private sources (through a sale of Irish Life) or the State will be known by then. We’ll also know for once and for all if PTSB has a future as a standalone entity. I’ve a piece covering all of these issues in more detail here.


HMV, which I’ve written extensively about before, announced a debt deal and improved supplier terms. While the announcement was greeted with euphoria, I don’t see it changing my view (terminal) on the outlook for its business model.


As noted before, my old friend Wexboy has launched an ambitious, and very worthy, undertaking – The Great Irish Share Valuation Project. While I prefer to plod through the Irish and UK markets (with the occasional overseas name thrown in) on a case study-by-case study basis, I like his use of an excel file to plot his recommendations. Here’s a downloadable summary of my views on the stocks I’ve covered in detail on this blog.


There has been a lot of media coverage of the upcoming referendum on independence for Scotland. The debate seems to be heavily based around economic matters, which is no surprise given the large transfers Scotland receives from England. I note a report in last weekend’s Financial Times which said that including its geographical share of oil revenues Scotland would have run a 10.6% fiscal deficit in 2010. It’s worth noting that Greece’s deficit in the same year was -10.5%. For years Alex Salmond said Ireland was a key part of his economic model for an independent Scotland. Looking at Scotland’s fiscal position he may get his wish.


This is an interesting statistic – US online advertising spending will surpass print ad spending for the first time in 2012.


Did you hear about the $300bn of 1934 US gov bonds that were “found” in a crashed plane in a Philippines jungle?


Speaking of finds, did you hear about the cannon with a range of 14.5km that was discovered in Northern Ireland?

Market Musings 19/1/2012

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The past few days have been pretty hectic as I’ve started a full slate of new subjects as part of my MBA at the Smurfit Business School. So, this blog is really more of a catch up of what’s been going on.


The main news, for Irish retail investors, has been that two of the microcap plcs in Dublin look like they’ll soon be delisted. Siteserv responded to media reports that it was putting itself up for sale, and given the mountain of debt attached to it I expect that shareholders will be left more or less empty-handed. Like Siteserv, Readymix has been through the wars in recent years due to the difficult macro backdrop here, but its shareholders must be pleasantly surprised to have woken up this morning to news that majority shareholder Cemex has made a preliminary 22c/share offer for it. My advice would be to take the money and run – the share price was only 3c/share before today and the outlook for the Irish construction industry is unlikely to get significantly better for a long time to come.


(Disclaimer: I have an indirect shareholding in DCC plc) DCC cut full-year earnings guidance again due to better than expected weather. I have to admit to feeling like I’d egg on my face given my unequivocal endorsement of the company just before this warning, but with the shares currently trading above where they were at before I expressed my bullish sentiments it’s clear that the market is, like myself, taking the view that it would be unfair to blame a company for a very mild winter.


(Disclaimer: I am a shareholder in Marston’s plc) C&C issued a solid trading statement in which it said that operating profits for the full year would be in-line with previous guidance at €110m. Elsewhere in the broader alcoholic drinks space, UK pub groups Greene King and JD Wetherspoon both issued strong Christmas trading updates, buoyed by easy comparatives. This gives me optimism that the most recent addition to my portfolio, pub group Marston’s, has seen a similar performance.


(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) There was significant M&A activity in the European packaging space, with DS Smith bidding €1.6bn for SCA’s packaging business. As Davy’s Barry Dixon notes, if you apply the 6.3x EV/EBITDA SCA bid multiple to Smurfit you get an equity value of over €15 (yesterday’s closing SKG price: €5.58). Assuming it goes through, the deal would give a combined DS Smith – SCA 18-19% market share in Europe, just behind Smurfit Kappa Group’s 20%. In my view, this deal is a clear positive for the packaging sector, which is notoriously undisciplined when it comes to pricing. The more consolidation there is, the better, as the larger players will presumably encourage more rational pricing strategies.


SmI’ve expressed my admiration for fund manager Hugh Hendry before. I’ve also expressed my fears about the Chinese economy before. If you put the two of them together you see how Hugh Hendry’s fund, Eclectica, made 46% last year by betting against the Chinese economy. Oh, and speaking of the Chinese economy


Motorists – have you ever wondered about where the money you pay for petrol goes?


Speaking of taxes, the Irish government is planning to introduce a new broadcasting tax. In my view this is a blatant pitch by The Labour Party to cosy up to the State broadcaster, despite this being: (i) The 21st century, in which people can access information and content from all over the world at the click of a button; (ii) A model that sustains a State broadcaster that in addition to snaffling most of the taxes raised in this space also hoovers up private advertising revenue thus keeping Ireland’s privately owned media on life support; (iii) an era where the very notion of State-owned broadcasting agencies seems horribly antiquated – at best, and a possible threat to democracy – at worst; and (iv) an age in which people are consuming ever smaller amounts of traditional media. Presumably whenever the Minister goes on jollies to foreign countries he tells their political and business elite that Ireland is aiming to be a leader in digital media, while at the same time hitting Ireland’s YouTube generation with a tax to pay for inflated salaries at RTE.


In the blogosphere, Wexboy has commenced an interesting valuation project in which he looks at the stocks listed in Dublin. Well worth checking out.

Written by Philip O'Sullivan

January 19, 2012 at 9:14 am

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