Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Premier Foods

Market Musings 10/7/2012

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The past few days have been pretty quiet on the newsflow front, which has afforded me the opportunity to work on some financial models. I hope to publish a detailed case study on Smurfit Kappa Group later on this week, so those of you who follow the packaging sector might want to keep an eye out for that.

 

(Disclaimer: I am a shareholder in Abbey plc) This morning housebuilder Abbey released its FY12 results. While the tone was relatively subdued (it should be noted management has form for conservatism) the numbers themselves were pretty good. The firm completed 310 sales in the 12 months to the end of April, +2% year-on-year. Average selling prices were +4% across the group, as a 14% decline in Ireland, which now only represents circa 8% of turnover, was easily offset by a 7% increase in the UK, which accounts for circa 85% of revenue. The balance of Abbey’s activities are in the Czech Republic. Despite shelling out over €20m on share buybacks and landbank purchases, the group finished the year with net cash of €70.1m (56% of the current market cap), -€8.8m year-on-year. Overall, there’s nothing really in the statement for me to alter my narrative on the company, which is: Abbey is an exceptionally well run company, that is overwhelmingly exposed to the attractive South-East England market, with a very strong balance sheet, trading at an unwarranted 25% discount to its NAV. It’s cheap. I like it and would consider adding to my holding.

 

Since my last update, Aer Lingus says that it’s considering launching domestic flights in Britain. This serves to remind me of the value of the carrier’s Heathrow slots (it has the third highest number of take-off and landing slots and London’s busiest airport), and also of the opportunity it has to maximise the value of these through careful route management. If it secures the Heathrow-Edinburgh route, this will not be the first time Aer Lingus has operated routes originating and terminating outside of Ireland – it previously had a base at Gatwick Airport, while it currently flies a Washington DC – Madrid route on behalf of United Continental.

 

(Disclaimer: I am a shareholder in Independent News & Media) In the media space, following its recent shuttering of the Offaly Express, Johnston Press closed another Irish local title, Donegal on Sunday. As I’ve noted before, these unfortunate closures will by default result in market share gains for the likes of Independent News & Media, which publishes 13 local titles in Ireland.

 

In the blogosphere, John Kingham wrote a detailed case study on UTV Media, which he successfully traded in and out of. I covered the stock back in my analyst days (I feature in John’s case study!) and am quite impressed by the progress the company has made in terms of repairing its balance sheet. If only certain other Irish media groups were as successful when it comes to strengthening their financial position!

 

Speaking of case studies on highly indebted companies, Lewis took a peek at Premier Foods and rightly (in my view) concluded that the debt structure was unlikely to prove benign to equity investors.

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Written by Philip O'Sullivan

July 10, 2012 at 8:20 am

Market Musings 24/1/2012

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Since my last blog it’s been mostly all about trading updates and some good blogs from my UK and Irish peers. Let’s take a look at what has been going on.

 

Dragon Oil issued a solid trading update. Management had already guided the market on production levels, but there was a positive surprise in the shape of an upward revision to reserves. As Goodbody’s Gerry Hennigan points out, Dragon recorded gross reserves of 658 mmboe at the end of 2005, the same figure outlined for 2011, despite production over the past six years. His total risked NAV on the stock is £8.17, which compares favourably with yesterday’s £5.13 closing price. Given that Dragon is effectively a play on the oil price, this could be one to trade should tensions with Iran worsen.

 

Speaking of the oil sector, you might recall that some months ago I criticised Chancellor of the Exchequer George Osborne for raising taxes on North Sea oil producers. Well, last year only 14 exploration wells were drilled offshore UK, the lowest rate of activity since 1965. Cause, meet effect.

 

(Disclaimer: I am a shareholder in PetroNeft plc) Elsewhere, I note that there has been an oil IPO in London today – RusPetro – its operations are in the same geographical area as PetroNeft’s, so it’s one I’ll be keeping an eye on.

 

(Disclaimer: I am a shareholder in Glanbia plc) Switching to food stocks, PZ Cussons issued a trading statement earlier today in which it reported “strong revenue growth” in its Nigerian nutrition business – which is a 50:50 joint venture with Glanbia. This is a further positive sign for Glanbia, although I think its share price is high enough at current levels, for reasons I recently outlined.

 

(Disclaimer: I am a shareholder in Playtech Ltd) It was a busy day for Playtech, which announced Q4 KPIs, 2 new joint ventures and an acquisition. I take encouragement from the solid trading stats and decent enough start to 2012 for the group. On the joint ventures, these bolster its position in Germany and South Africa, two large markets that are reportedly going down the route of further liberalisation. While my concerns around corporate governance issues have not gone away, I’m happy to let this one run a little longer in the hope that it can get back to my break-even point in the near future. To me Playtech is like a paratroop on a C-130 plane – it’s waiting for the green light before jumping out of my portfolio!

 

In the blogosphere, Mark Carter wrote a great blog on Premier Foods that’s worth checking out here. Lewis at Expecting Value does a good write-up of his experiences as a shareholder in RSM Tenon, which reminds me of some of the horror stories in my own portfolio over the years!

 

Finally, I did some digging on the National Newspapers of Ireland website yesterday and was interested to read through how circulation figures have evolved for the national titles here over the past few years. Comparing the most recent data to five years ago reveals that over that period circulations have performed as follows: Irish Times -14%, Irish Independent -17%, Irish Examiner -24%, Irish Star -23%, Irish Mirror -16%, Irish Sun -27%. You can download the data set from my blog by clicking this link.

Written by Philip O'Sullivan

January 24, 2012 at 5:18 pm

Market Musings 16/12/11

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So much for my prediction that newsflow would die down before Christmas! We’ve seen a lot of companies issue trading updates, while there has also been some positive indications on the prospects for further asset disposals by the Irish banks, which should help reduce the financial burden the banking system has placed on taxpayers.

 

(Disclaimer: I am a shareholder in Irish Life & Permanent plc) I was pleased to read that IL&P expects to receive more than 10 bids for its UK loan book, which bodes well for the haircut (25% assumed in PLAR) it’ll have to take on the sale. This also has positive read-through for IBRC’s upcoming disposal of the old Anglo Irish Bank UK loanbook. So, hopefully some money saved for the Irish taxpayer.

 

Prime Active Capital issued a downbeat update yesterday, in which management said it was writing off its investment in Media Square plc and also revealed tough trading conditions for its operating business, which retails mobile phones in the United States.

 

Another Irish microcap, Siteserv, issued H1 results this morning. Management has done well to grow revenues and operating profits in such difficult conditions, but the company remains saddled with borrowings – net debt of €150.3m is nearly 10x its trailing twelve month EBITDA (€15.5m).

 

(Disclaimer: I am a shareholder in Playtech plc) I was pleased to see Playtech acquire Ash Gaming today. Ash will fit well within Playtech’s portfolio and it makes a nice change to see the company doing some M&A that doesn’t involve a related party!

 

Dragon Oil issued a solid drilling update this morning, in which the company announced that it has achieved its previously stated goal of hitting a production level of 70kbopd by the end of 2011.

 

I was interested to read that Telefonica has cut its dividend. My interest in the Europe’s former telecom monopolies starts and ends with their dividends (given the extremely muted growth outlook for the sector as a whole), so this does nothing to improve my sentiment towards the industry.

 

Following on from my recent blog, I was interested to hear that Boyne Valley has prevailed in the battle to buy Premier Foods’ Irish business. It’s good to see more consolidation in the food and beverage sector – which is absolutely necessary to counter the margin crushing that arises from big multiples’ playing suppliers off against each other. Speaking of which, I was pleased to learn of the sale of Cooley Distillery for €71m. It was founded by Smurfit MBA graduate John Teeling and this current Smurfit MBA student salutes him!

Market Musings 12/12/11

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With Christmas fast approaching, there isn’t a huge amount of corporate news to keep on top of. I’ve 2 assignments and an exam to complete between now and December 19, and I’ll be releasing my tips for 2012 after that. In this short blog I round up all of the major newsflow that I’ve seen in the past 72 hours.

 

(Disclaimer: I am a shareholder in PetroNeft plc) Interactive Investor ran an interesting interview with PetroNeft CEO Dennis Francis. In it he ruled out a rights issue (which is positive news given how beaten up the share price is), and talked about how his priority is to grow output levels. While he touched on the issue of acquisitions, I got the distinct impression that he would prefer to maximise output from Licence 61 and Licence 67 (its current areas of operations) rather than buy other development assets. This is clearly a lower-risk (and more shareholder-friendly in the short-to-medium term) strategy. So, some positive noises there.

 

According to a report in the weekend press, Greencore is facing a hit of up to €4m due to an associate going into receivership. While this is clearly a setback, it is relatively minor (and one-off) so I don’t think it does anything to change my investment view on it. If you want a even more downbeat investment view on Greencore, read this two-parter from Wexboy (Part I and Part II).

 

(Disclaimer: I am an indirect shareholder in DCC plc) Staying with the food sector, DCC, Valeo (which is an associate of Origin Enterprises plc) and Boyne Valley are all said to be interested in buying Premier Foods’ €30-40m rated Irish business. Premier’s Irish brands comprise Erin, Chivers, Gateaux and McDonnells, while the Irish operation also sells some of Premier’s UK brands along with some agency brands. While I don’t know anything about Boyne Valley, at first glance it looks like Premier Foods’ Irish business would be a great fit for either DCC or Valeo.

 

(Disclaimer: I am a shareholder in Datalex plc) Australia’s Flight Centre has announced that it has settled its long-running legal dispute with Datalex. While no details of the settlement were disclosed, save for the matter having been resolved to their ‘mutual satisfaction’, it removes an overhang that has dogged Datalex since Flight Centre announced that it was suing it for $15m back in 2009.

 

Some fantastic news from the United States – according to Iowa Electronic Markets (real money futures) data, Ron Paul is now the favourite to win the Iowa Caucus in the New Year. This will put his message of sound money and fiscal responsibility – a gospel that needs to be preached throughout the West – firmly in the spotlight. To illustrate the mess the US is presently in, I was interested to read that only twice as many Americans hold passports than the number that are on food stamps.

 

Finally, NAMA expects to make operating profits (pre-bad debt charges) of €600m this year. Recent positive noises on the prospect for disposals in the UK and also tax changes here (stamp duty on commercial property cut from 6% to 2%, no CGT on purchases to end-2013 if held for 7 years) have improved the outlook for this entity, and will hopefully see it offload its portfolio sooner rather than later.

Written by Philip O'Sullivan

December 12, 2011 at 4:33 pm

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