Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘One51

Market Musings 19/6/2012

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A big placing and reassuring company updates have given me plenty to contemplate since my last update.


(Disclaimer: I am a shareholder in Irish Continental Group plc) The big news from an Irish corporate perspective since I last blogged was yesterday’s €50m placing in ICG. Irish investment group One51 offloaded its 3m shares at €14.50 apiece, which was a much smaller discount than I would have expected in these difficult markets, but this narrow discount may be explained by ICG picking up 700k of those shares. Not that this necessarily represents a poor deal for ICG – the 700k shares bought back and cancelled at a cost of €10m will save €700k a year in dividend payments, so a 7% annual cash ‘return’ and circa 3% uplift to EPS arising from the lower number of shares in issue looks like a tidy bit of business. It also removes an overhang on the share register, for as regular readers of this blog are aware, I had been expecting One51 to exit this holding for some time. In terms of my reaction to this development, I am closely monitoring the ICG share price with a view to finding a suitable entry level to add to my existing holding.


Turning to the energy sector, Kentz issued a solid trading update this morning just ahead of its analyst jolly / site visit (delete where applicable) to South Africa. The key takeaways are that the group is trading in line with its recently provided guidance, while reassuringly saying that its pipeline gives it visibility on projects out to 2015. At the time of writing the shares are up 7%, which given that there is no change to guidance suggests that there may be at least some short covering going on in Kentz this morning.


(Disclaimer: I am a shareholder in Bank of Ireland plc) Shareholders in Bank of Ireland, as expected, voted overwhelmingly in favour of the transaction with IBRC. This deal should net the group €38.7m in profits.


(Disclaimer: I am a shareholder in France Telecom plc) Following intense speculation of a private equity bid for France Telecom’s UK mobile joint venture, Everything Everywhere, management reaffirmed its support for retaining the brand. However, the media hasn’t yet given up on this story, so we’ll watch this space.


In the blogosphere, I was delighted to see that Paul ‘Paulypilot’ Scott has set up his own blog, which is well worth checking out, while elsewhere Lewis at Expecting Value did a write-up on chocolatier Thornton’s, which is not one for me (my UK consumer facing holdings, Tesco and Marston’s, are far better equipped in my view to get through the ongoing headwinds facing the British economy).


Written by Philip O'Sullivan

June 19, 2012 at 7:52 am

Market Musings 28/4/2012

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(Disclaimer: I am a shareholder in Irish Continental Group plc) Since my last blog post I was interested to read the FY2011 results statement from grey market ‘listed’ Irish investment group One51. The management team, led by CEO Alan Walsh, has done a good job at starting to reposition the group, but it remains somewhat hamstrung by its high net debt (€146.4m at end-2011, or 4.0x last year’s EBITDA). In recent months it has disposed of interests in Premier Proteins and IFG, while it is in the process of selling its Speciality Plastics Business.  Management add that “Other assets will be sold as part of the two year Action Plan” and “it is anticipated that net debt levels will be substantially reduced over the course of 2012”. While ‘substantially’ is such a subjective term, I am guessing that the company is giving serious consideration to a sale of its 12.3% stake in Irish Continental Group (current market value €46.8m) as part of this process. Elsewhere within the statement, I was very interested to read of the recent appointment of a number of heavyweight directors along with a reaffirmation of One51’s “commitment to meeting the main requirements of the UK Corporate Governance Code and the Irish Corporate Governance Annex during the course of 2011 and beyond”, which to me reads like it’s also considering moving to a full stock market listing in time.


Overall, I would welcome a placing of One51’s ICG holding given that (i) it will improve liquidity in it; and (ii) from a selfish perspective (!) it would likely provide an opportunity to add to my position at an attractive level.


(Disclaimer: I am a shareholder in Ryanair plc and CRH plc) Goodbody Stockbrokers issued its latest investment strategy note. In it the broker says Ryanair, Dragon Oil, Aryzta, Paddy Power, William Hill, Kingspan and FBD are its preferred Q2 longs, while it still favours shorting CRH.


From a macro perspective, I was interested to see this blog post on the FT website about how stockpiles of copper and aluminium are overflowing into carparks in China. The words “hard” and “landing” come to mind.


Elsewhere, the head of NAMA made some interesting comments yesterday about its overseas portfolio. So far the agency has advanced €280m on working capital for overseas developments. In NAMA’s Q3 2011 report it disclosed that “working and development capital of €873 million has been approved by NAMA to end September 2011 of which €477m has been drawn”. Considering that two-thirds of NAMA’s initial loan ‘assets’ were located in Ireland at the time of its establishment, it does seem that overseas developments are getting disproportionate attention from the agency, but given the grim state of the domestic economy can anyone here really be surprised?


Written by Philip O'Sullivan

April 28, 2012 at 9:54 am

Market Musings 4/3/2012

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Big share deals and Ireland Inc have provided the most interest since my last market update. Let’s see what the lessons from these are.


(Disclaimer: I am a shareholder in Ryanair plc) To kick off with the transport sector, Ryanair announced that it bought back 9.5m of its own shares at a cost of €39m. This is particularly interesting in light of comments made on the carrier’s conference call post its Q3 results that it could spend up to €200m on share buybacks. This should help to prop up the share price against the pressure of the recent spike in oil prices. I hope to do a detailed piece on Ryanair over the coming days.


(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) To switch from the purchase of a big block of shares to a sale of one, private equity houses Cinven and CVC announced that they sold a 9.7% stake in Smurfit Kappa Group for €158m. The two retain an 8.2% position which is subject to a lock-in agreement until the release of SKG’s Q1 results in May – which I can’t help but wonder if this will be seen as a near-term overhang on the stock – time will tell.


(Disclaimer: I am a shareholder in Irish Continental Group plc) These big share transactions bring to mind a lot of the other stakes in Irish plcs that could change hands this year. The Irish government has signaled a willingness to sell its 25.1% stake in Aer Lingus. One51 has said that it will sell non-core assets, which I assume includes its circa 12% stake in Irish Continental Group. How long will baked goods company Aryzta hold on to its 71.4% shareholding in agri group Origin Enterprises plc for? Given the recent boardroom dispute at UTV Media, what are the intentions of its 18% shareholder and fellow Irish plc TVC Holdings? We could be in for an interesting few months ahead.


Switching to Ireland Inc, the IMF struck a relatively positive note about the country’s prospects. However, the fiscal crisis continues to drag on. Exchequer Returns data for the first two months of the year revealed that the year to date deficit stands at €2.07bn versus €1.95bn in the same period in 2011. The tax take increased from €4.9bn to €6.3bn, but voted expenditure (the part of spending that the government has full discretion over) rose by €474m – this is a disappointing performance. Non-voted expenditure ballooned from €580m to €1.6bn, let by a massive increase in interest costs on the national debt (€848m vs only €61m) and a €250m loan to the insurance compensation fund. The interest costs serve as a reminder of the consequence of this government’s (and its predecessor’s) failure to close the fiscal jaws been revenue and spending. It is astonishing, given the unemployment and emigration crises Ireland is facing, that the government spent 10x on national debt interest costs (€848m) in the first 2 months of 2012 than it did on the Department of Jobs, Enterprise & Innovation (€84.5m).


Finally, in the blogosphere Neonomic did up a good piece on Home Retail Group, which owns Argos and Homebase, that’s worth a read.

Written by Philip O'Sullivan

March 4, 2012 at 10:23 am

Market Musings 26/1/2012

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


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


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


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


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


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


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

Written by Philip O'Sullivan

January 26, 2012 at 1:15 pm

Market Musings 4/7/11

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It was a quiet enough weekend in terms of business news, with Greece again the main focus for market watchers.


Last week’s market enthusiasm over the latest developments in Greece surprised me. Leaving aside the costs of running the country, the EU-IMF’s €12bn emergency loan for Greece only covers Greek debt maturing up to August 20. In addition, the EU-IMF plan for Greece requires it to privatise billions of euro worth of State assets, and I don’t see where they are going to find the buyers to meet that goal. Also, given Greece’s past form, it will be interesting to see if its politicians come good on their promises to right-size the public finances, a point that I suspect prompted Eurogroup chairman Jean-Claude Juncker to say that: “The sovereignty of Greece will be massively limited“. And a final pointer on the Hellenic hot potato – S&P says the rollover plan may put Greece in selective default.


Speaking of debt restructuring, here is a good article that compares the Uruguayan experience with the Argentinian one.


(Disclaimer: I’m a shareholder in ICG plc) Turning to Irish corporate news, I was unsurprised to see the Sunday papers speculate about One51’s intentions for its shareholding in Irish Continental Group. I wrote about this in my last blog, but one thing I neglected to mention was that One51 is also the largest shareholder in UK waste group Augean plc, a group that it previously held takeover talks with. Should One51 be tempted to cash in on its ICG investment, it should be noted that when Doyle Shipping placed a similar sized stake in ICG to what One51 now holds back in May the placing was oversubscribed.

Written by Philip O'Sullivan

July 4, 2011 at 8:25 am

Market Musings 2/7/11

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It’s hard to believe that we’re already into the second half of the year. Looking over the books for H1, I see that in euro terms my share portfolio was down 1.3% in the first six months of 2011, but this doesn’t concern me unduly, given sterling’s 4.6% decline against the single currency during the period (my UK exposure has oscillated between 40% and 51% of my portfolio since the start of the year). While I would obviously would like to be repeating last year’s double-digit gains, given the troubled macro backdrop for me this year has been more about trying to hold on to what I have than trying to chase alpha. Looking ahead to H2, the removal of QE2 is likely to have serious consequences for risk asset valuations, while the upcoming results season should bring a lot of profit warnings our way. Speaking of which, an Ernst & Young survey during the week revealed that UK plcs issued 75 profit warnings in Q111, the largest number since Q109 and a 47% increase on Q410, with most of the profit warnings occurring in the retail, media and support services sectors. I’ve tried to position myself for what I see happening in H2 as well as I can, by remaining overweight cash, and selling the more expensively rated consumer-facing stocks in my portfolio since the start of the year (the latter strategy has been vindicated by recent profit warnings in the UK in particular).


I divide my portfolio into two segments – the biggest one comprises my “core positions” – the ones that I see as long-term holds due to their inexpensive ratings, strong market positions and “will never give me a sleepless night” characteristics. The smaller one is my trading portfolio – the stocks I intend selling once they hit my price targets. There are only four names in that – France Telecom, Ryanair, Playtech and Trinity Mirror. France Telecom has been good to me over the years, paying me a 9% gross dividend yield each year since I bought it, but I’m worried about the sustainability of its business model over the longer-term and also the political interference which prevents it from cutting its bloated domestic workforce. Playtech has a potentially huge structural opportunity as gaming markets liberalise, but I fell out of love with it due to its handling of its recent acquisition of businesses from its largest shareholder. Trinity Mirror‘s businesses might be very exposed to the UK consumer, but I see it as a value play. The company prints 5 national newspapers and 160 regional titles in the UK, makes underlying operating profits of £120m a year and has cut net debt by 25% in the past year to £266m, thus giving it the financial staying power to keep going as weaker competitors go by the wayside. While it’s undeniable that more and more advertising will transition away from print, it doesn’t bother me if the pie shrinks so long as Trinity Mirror’s share of the pie is able to grow to make up for it. Trinity Mirror also owns freehold property assets worth 72p a share, versus a current share price of around 42p. So as debt shrinks and competitors exit the market, I see good upside for the shares from here. Ryanair looks a strange one to have ready to be drop kicked out of here, but I see it as a hedge against the oil stocks in my core portfolio. If oil sinks in H2, Ryanair should spike up and I have a few things in mind to recycle the proceeds into when the time comes.


(Disclaimer: I’m a shareholder in Uniq plc) In other news, I was interested to see Greencore’s share price fall below €1.00 during the week – the way it has been trading of late I wonder if some market observers are betting on a successful outcome in its battle to buy Uniqwhich some brokers suggest would be at least part funded through a rights issue. Speaking as a Uniq shareholder I would welcome a share alternative, given the synergy benefits that would arise from a merger between the two.


Here are some interesting statistics I saw during the week: Morgan Stanley says China produces 80% of the world’s toys, and accounts for nearly half of the clothing imported into Europe.


One51 parted company with its CEO Philip Lynch last night. I’ve written about the company before, and again reiterate my view that the company should seek a full listing on the Irish Stock Exchange to improve liquidity and transparency. (Disclaimer: I am a shareholder in ICG plc) I wonder whether Lynch’s departure will have any consequence for its holdings in listed companies ICG and IFG, not to mention grey market listed NTR.

Written by Philip O'Sullivan

July 2, 2011 at 1:24 pm

Market Musings 15/6/11

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Over the past 48 hours the main focus for me has been on peripheral Europe. We’ve seen Irish bond yields rise to a euro-era high, not helped by the decision of LCH.RepoClear to hike margins on our sovereign debt to 75% and further downgrades for Greece.  Greece is now the lowest-rated sovereign in the world, having fallen below Ecuador, Jamaica, Pakistan and Grenada. The muddled response of the ECB and European Commission to the peripheral countries’ problems to date shows no sign of abating. Indeed, the next head of the ECB, Mario Draghi, ruled out a medium term facility for Irish banks yesterday, which to me means that our banks will continue to limp on from crisis to crisis, thus providing: (i) Ongoing hits to the already fragile consumer confidence here; (ii) Headlines to frighten away prospective private investors; and (iii) Regular sticks for the market to get beaten with.


As regular readers will know, China is a source of major concern to me, given the risks that are intensifying around what is the main engine for world economic growth at this time, particularly in terms of its construction sector. I note that in its latest effort to contain the froth in this area, the PBOC has raised Chinese banks’ reserve requirement ratio for the 9th time since October. The fact that it has been raising this ratio on a monthly basis for 9 months now makes it clear to me that efforts to deflate the bubble thus far have proved to be too little, too late. And as we’ve seen in Ireland, property bubbles can end very, very badly. So it’s no surprise to see the latest rating moves by S&P on China’s property developers.


Turning to corporate Ireland, signs of boardroom tensions at One51 emerged this week. The timing for me is interesting given that the group is presumably doing better on the valuation front on the back of potential corporate activity involving one of its portfolio shareholdings, IFG, while the NAV will have also benefited from the restoration of significant dividend payouts at one of its core shareholdings, Irish Continental Group. However, with the shares listed on an illiquid grey market it’s difficult to see how investors will get an appropriate lift from positive developments such as those. The board of One51 should move to secure a listing on the Irish Stock Exchange to improve liquidity and transparency.


Finally, if you want an indication on how brittle consumer spending is, have a look at PC and video game retailer Game Group’s like-for-like sales trends in the UK and Ireland.

Written by Philip O'Sullivan

June 15, 2011 at 8:51 am

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