Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Ireland

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 19/4/2012

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What an eventful 48 hours it’s been since my last update!


(Disclaimer: I am a shareholder in Independent News & Media plc and Trinity Mirror plc) The media sector has produced much excitement, with boardroom ructions and rumours of stakebuilding to the fore. This morning two large prints in INM – one for 10m shares, the other for 3m, were recorded. Combined this is equivalent to 2.4% of the company. RTE hints that the buyer is not connected to the three billionaires (Tony O’Reilly & family, Dermot Desmond and Denis O’Brien) on the INM register, which adds a further touch of intrigue to the stock. This evening it was confirmed that Gavin O’Reilly has stepped down as INM CEO, to be replaced by Vincent Crowley. I welcome Crowley’s appointment – I met him quite a few times when I covered INM as a sell-side analyst some years ago and was very impressed by him. He has a good reputation for tight cost management (earned at a time when the Irish economy was thriving and few executives here were as focused on cost take-out as he was back then) and any strong action by him on this front could see a decent re-rating for the stock, which is capitalised at only €134m. I take encouragement from INM’s statement this evening that Crowley “has the unanimous support of the Board”, which hopefully will put to rest the ugly (and very public) feuding that has made the underlying performance of the group something of a side-show for too long. In an ideal world this change will pave the way for the group to focus 100% on the main task at hand, i.e. maximising cash generation to fix the balance sheet and enhance shareholder value. Elsewhere in the media sector, in the UK DMGT’s trading update revealed weakening trends in the past three months, which doesn’t bode well for the likes of Trinity Mirror and Johnston Press.


(Disclaimer: I am a shareholder in Tesco plc) Tesco released its results and a strategy update. The results were in line, and management sees the 2012/13 performance (yes, I know it’s early days) meeting forecasts. On the strategy front, there was nothing new that I saw given the extensive media previews / leaks (delete where applicable) in the run up to the official announcement. Obviously time will tell if the strategic objectives are met, but I’m willing to give Tesco the benefit of the doubt given its proven track record, strong brand (I know some people dispute this, but I doubt they’d slap Tesco as a prefix to all sorts of new ventures if the brand wasn’t that good) and solid market positions in many of its key geographies. Many analysts seem to concur. Valuhunter did up a good piece on Tesco here that’s worth a look.


This is absolutely brilliant – check out Paddy Power’s comic-book style annual report.


For those of you who follow the oil sector, Dragon Oil’s CEO made some interesting comments about its future strategy in this video interview.


(Disclaimer: I am a shareholder in Abbey plc) Following on from recent upbeat comments from Telford Homes, Persimmon issued an IMS laden with news of rising orders, margins and cashflow. This all gives me further comfort on my position in Abbey.


On the macro front, I was interested to read that authorities zoned enough land for residential to accommodate double the population of Ireland. I’d love to find the genius who thought it would be a good idea to have local councils give an input into this process.


Speaking of housing, Chinese house prices fell in 46 of the 70 biggest cities month-on-month in March (in 37 out of the 70 on a year-on-year basis). I have repeatedly identified this area as a serious problem for China, most recently here.


And finally, here’s the IMF’s ultimate guide to which countries are the most vulnerable in terms of debt/leverage. No surprise to see Ireland is covered in red ink.

Written by Philip O'Sullivan

April 19, 2012 at 5:22 pm

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 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 14/12/11

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(Disclaimer: I am a shareholder in CRH plc) There was a good bit of newsflow around CRH and its peers in recent days. In the US, Martin Marietta made a $5bn hostile bid for Vulcan Materials.  If the deal goes through, on paper the combined entity will have 15% of the US aggregates market, compared with 6% for its nearest competitor, CRH. However, in reality I expect forced sales from the combined entity to satisfy regulatory concerns, which will present opportunities for CRH to add to its portfolio of assets in North America at very attractive prices (given the paucity of alternative buyers in the market for heavyside assets). In terms of the implications of the deal for CRH’s valuation, I was interested to read a note from Merrill Lynch which said if the Martin Marietta-Vulcan bid multiple is applied to CRH’s US aggregates unit, the rest of CRH is trading on only 2x EV/EBITDA…”or, looked at alternatively, CRH’s share price should be €25 if we apply this 20x multiple in any sum of the parts calculation”. At the time of writing CRH’s share price is €13.35.


This morning Paddy Power announced that it is entering the North American market after signing a B2B deal with the British Columbia Lottery Corporation. This is an excellent deal that highlights once more Paddy Power’s superior infrastructure – it follows another B2B deal with France’s PMU and showcases Paddy Power’s evolution into a business with both B2B and B2C offerings. As cash-strapped governments the world over relax gambling rules in an effort to find new streams of taxable revenue, this will present a clear structural growth opportunity for Paddy Power to win more deals of this kind.


We saw a couple of updates from firms exposed to the UK housing market this week. Carpetright’s H1 results looked reasonably OK (all things considered, given the difficult UK consumer backdrop) to me. There were no major surprises in the statement, with like-for-like revenues -2.4% while the dividend was suspended (as previously flagged). Elsewhere, Travis Perkins released a very solid trading update, in which management said the group is on track to meet profit and net debt targets for the full-year.


(Disclaimer: I am a shareholder in Datalex plc) Following the recent positive news of a resolution of its litigation with Flight Centre, Datalex was upgraded to ‘Outperform’ at Davy. The company issued a stock exchange release which said it would book a $2m exceptional item regarding this settlement. I was pleased to see the firm also state in the release that its EBITDA and net cash guidance for FY11 remains unchanged.


(Disclaimer: I am a shareholder in Ryanair plc) Staying in the broader travel sector, this is more bad news for tour operators – Ryanair is to open a new base at Palma.


Stockbroker Brewin Dolphin published a list of 15 stocks for own for the next 4 years (i.e. 15 for 2015).


Speaking of stockbroker recommendations, Dolmen upped its price target on Cove Energy to 200p/share. That’s 100% upside from where the stock was trading earlier today!


(Disclaimer: I am a shareholder in Irish Continental Group plc) And speaking of broker notes that caught my eye, I saw an excellent 30 page note from Merrion’s Gerard Moore today on ICG – “Cash Machine”. For income investors, this part is particularly interesting:


“Even in a stressed scenario we estimate ICG could comfortably pay a dividend of €1 (Yield 7%) and in our core scenario ICG could increase the dividend to €1.23 in FY 12 (Yield 9%) and €1.98 in FY 13 (Yield 14%), while remaining debt free“.


Switching to macro news, economist and Bloomberg Brief contributor Michael McDonough has been doing a great job in charting the decline in the Chinese housing market. This chart captures the trend in house prices there. And as we’ve seen in Ireland, such moves bode ill for China’s financial institutions and the wider economy.


Greece’s January – November budget deficit? €20.52bn. Ireland’s budget deficit for the same period? €21.37bn

Market Musings 8/11/11

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It’s very hard to find the time to blog on consecutive days due to all of my various commitments, but given today’s extraordinary events involving so many Irish companies it would be remiss of me not to put aside some time to reflect on what has been going on.


(Disclaimer: I am a shareholder in CRH plc) The Irish Stock Exchange’s largest constituent, CRH, released a downbeat trading update today, with guidance coming in behind what a lot of brokers had penciled in, with the miss due to worse than expected margin pressures. However, despite this the shares rallied strongly, finishing the day up 4% after it also announced that from December 6 it will have a primary listing in London and a secondary listing in Dublin. This will put CRH into the FTSE 100 index from mid-December, so what we saw today was a lot of funds getting involved ahead of the inevitable “index buying” that will follow CRH’s FTSE 100 inclusion. The flipside of course is that this is an ominous development for the Irish Stock Exchange, which now looks a shadow of its former self.


Another chunky component of the ISEQ is DCC, which, as regular readers know, is a stock that I’m very fond of. Earlier today it issued H1 results that struck a reasonably downbeat tone, as expected, due to the warmer temperatures in the UK and Ireland in recent months. While DCC got a kicking today, declining 4.3% in Dublin, this reaction is unwarranted. Weather is clearly something that DCC has no control over, and had normal temperature levels manifested themselves, management would be rightly toasting a solid set of numbers. DCC is a conglomerate with 5 distinct businesses, and outside of Energy, where reported profits fell 38% for the reason outlined above, all 4 of its other divisions (Sercom +7%, Healthcare +1%, Environmental +12%, Food +11%) reported healthy profit growth, despite difficult economic conditions. Trading on less than 10x earnings, with a strong balance sheet and a proven record of generating consistently high returns, DCC looks like very good value here.


We also saw quite a bit of M&A activity involving Irish companies buying overseas businesses today. C&C acquired the #2 cider brand in the USA, Hornsby’s, in a deal worth up to €20m. Obviously this is a small deal, but at the same time it is one with huge potential. In addition to C&C being able to apply its resources in terms of a strong balance sheet and considerable experience in the UK and Ireland to this new US unit, Hornsby’s also offers a platform for C&C to cross-sell its Magners brand. From the C&C conference call it was revealed that Hornsby’s complements Magners in terms of price points, with Magners selling at the top end of the range – at $10.99 for a six pack versus $6.99-$7.99 for Hornsby’s, which tends to sell about $1 behind the market leader, Woodchuck.


Another Irish firm that announced a deal today was Donegal Creameries, which announced that it has bought a Scottish seed potato business. AJ Allan will grow Donegal’s potato output from 50,000 to 62,000 tonnes annually, and marks the ongoing re-positioning of the group following the recent sale of its liquid milk business.


For a perspective on how bad banks’ legacy loan books are in Ireland – Lloyds’ Irish portfolio is now 67% impaired.


My marketing professor recommended that I look at Seth Godin’s blog. One of the first blogs that I read on it was this one – Six questions for analyzing a website – which is a great read. If you run your own site, check it out.


In terms of other inspired works – Leigh Drogen’s excellent A Message To My Generation is one of the best things I’ve read in a long time.

Written by Philip O'Sullivan

November 8, 2011 at 7:53 pm

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 2/10/11

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It’s been a busy few days, with a lot of college assignments to work on. Thankfully there hasn’t been a lot of newsflow to go through. Most of what I’ve seen has had a distinctly Irish feel to it. Let’s take a look:


(Disclaimer: I’m a shareholder in AIB, CRH and Ryanair) In terms of the markets, I was intrigued to read that AIB’s €21bn market cap is more than CRH (€8.3bn), Ryanair (€4.9bn), Kerry (€4.6bn) and Paddy Power (€1.9bn) combined. This anomaly is primarily down to the billions of shares AIB has issued to the State and its very low free-float – every 1c move in AIB’s share price moves the group’s market cap by €5bn. In terms of where Allieds should be trading at, it’s clearly finger in the air stuff. But for reference, its closest peer, Bank of Ireland, trades at a market cap of only €2.3bn, and you can decide for yourselves whether AIB should be trading at such a vast premium to its main rival.


Elsewhere on the ISEQ, I was interested to learn that Irish-Swiss baking group Aryzta’s La Brea line is the 9th best selling fresh bread brand in the United States. Aryzta has a lot of “hidden brands” as well. For example, if you buy a cookie in Subway, it’s made by Arytza’s Otis Spunkmeyer unit. If you buy a McDonalds burger in Australia, it’s made by Aryzta’s Fresh Start Bakeries unit. If you go into a Tim Hortons restaurant in Canada and buy a bagel, it’s made at Aryzta’s Maidstone Bakeries unit. If you go into a Starbucks in the United States and buy a sandwich, the bread is made by Aryzta’s Pennant Foods unit. The list goes on!


(Disclaimer: I’m a shareholder in Total Produce plc) Staying in the Irish food sector, I note that the listeria outbreak in the US is spreading. First it was affecting melons, now it’s hitting lettuce. This may have an impact (albeit a small one) on Ireland’s Total Produce and Fyffes.


Ireland Inc got a very welcome vote of confidence from Google, which announced that it is to invest €75m in a new data centre in Dublin. The city has become a major hub for the internet industry, with the likes of Twitter, LinkedIn and Facebook all having been attracted to the capital. Hopefully the example they set will encourage more Irish entrepreneurs to set up online businesses, to add to previous success stories such as the gifted Collison brothers from Limerick. As an aside, I was amused to read a report that a pub crawl may have contributed to Twitter’s decision to open an office in Dublin!


Bloomberg reports that Ireland is looking for payback for “averting Europe’s Lehman”. While I agree with the gist of the story, I did scratch my head at the mention of how much our bond yields have improved by. Make no mistakes about it, the primary reason for this improvement is gargantuan purchases of our debt by the ECB in the secondary market. The Irish economy has been deteriorating in recent months and the public finances are not materially different to the targets set at the start of the year.


Speaking of Ireland’s public finances, how about this revealing comment from Socialist Workers Party TD Richard Boyd-Barrett – when queried about his €12k annual expenses claims for travelling the 12 kilometres between his constituency and Dáil Éireann (the Irish parliament), he explained:


I do not use that money; it goes into a campaign fund.


You’d wonder how many Irish taxpayers would be willing, if it were optional, to pay taxes to fund politicians’ “campaigns”.

Written by Philip O'Sullivan

October 2, 2011 at 9:28 am

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 17/9/11

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Since my last update we’ve seen some heroics from the Irish team at the Rugby World Cup, co-ordinated central bank moves, a rogue trader and good news for Greencore.


Probably the biggest news this week was the announcement of co-ordinated central bank intervention by the Fed, BoE, ECB, SNB and BOJ to boost liquidity. In recent months there had been a number of unilateral moves by central banks (the Swiss monetary authority’s move to devalue the franc being one example) so it’s good to see the powers that be working together again. The markets welcomed this liquidity move, which is timely (and, let’s be honest, necessary) given the concerns around European banks.


News of a fresh rogue trader scandal emerged shortly after I finished writing my last entry. In a sign of the way things go these days, the suspect in this case already has a wikipedia entry and a number of fan clubs on Facebook! Disturbingly, his alleged actions go back as far as 2008, which if true raises obvious questions about UBS’ risk management systems and both its internal and external auditors. I was amused to see the ratings agencies, who are always the last to the party, suggest that they may downgrade UBS on the back of this.


We had the folly of Tim Geithner visiting Europe this week to lecture our political overlords, with no hint of irony, on how things should be done. I would concur with Juergen Stark’s comments.


I was drawn into a rather circular debate the other night about the provision of universal benefits in Ireland. We have a situation here where roughly half of the Irish population is in receipt of at least one social welfare payment. Is it any wonder that the total social welfare budget for 2010 (€13.2bn) was more than the government’s total income tax take (€11.3bn)? At a time when the State is teetering on the verge of bankruptcy, we simply cannot continue to support a system where people can qualify for benefits regardless of their means.


(Disclaimer: I am a shareholder in Uniq plc) Turning to corporate news, Uniq released its last-ever set of interim results yesterday. It will shortly be taken over by Irish-headquartered Greencore plc. Shareholders in the latter should be pleased with the strong performance by Uniq’s food-to-go unit, which is the area of most overlap with Greencore’s operations.


Speaking of plcs, Expecting Value had a great blog piece on Barratt Developments, which I’d encourage you to take a look at.


Finally, what an amazing win for Ireland in the Rugby World Cup today! I think it’s only fitting that the last word should go to Ronan O’Gara – it really is “a great day to be Irish”.

Written by Philip O'Sullivan

September 17, 2011 at 5:50 pm

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