Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘RBS

Market Musings 15/9/2012

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It’s been an eventful few days since my last ‘general’ round-up on what’s been happening in the markets, with the Federal Reserve further opening the monetary sluices and continued positive developments around Ireland Inc (a well received sale of bills, positive noises from the IMF, soaring bond prices etc.)

 

For me, the central message to take from these markets at this time is that the monetary authorities on both sides of the Atlantic stand ready to do ‘whatever it takes‘ on the policy front. This is unambiguously bullish for a number of asset classes, in particular equities (in general) and commodities (including gold, which I’ve been a bull on for some time), however, it also has other consequences that are worth bearing in mind. While the growth outlook is concern enough in itself, the main overall threat in the system (in my view) remains on the prices front, as an enthralling battle takes place between the forces of inflation (central banks’ printing presses) and deflation (private sector deleveraging). Which force is likely to prevail? The old rule of “Don’t bet against the Fed” comes to mind. This to my mind puts the onus on investors to position themselves accordingly. We have seen from the share price reactions to Helicopter Ben’s latest move how they should do this, with mining stocks (e.g. commodity plays) surging, financials pushing higher (anything that pushes up asset prices a positive, while the funding outlook is improved) and a lift in those highly leveraged stocks operating well within covenants and who may take the opportunity to refinance at even lower rates as yields are pushed down elsewhere by central bank intervention (a good example being Smurfit Kappa Group, which I hold, whose balance sheet is to my mind still very much misunderstood by the market, and which rose 13% on 11 times average daily volume in Dublin yesterday as more investors wake up to to the story). Of course, it is also worth bearing in mind that higher commodity prices are likely to hurt a lot of stocks that are price takers on the input side and who will struggle, due to the tough economic backdrop, to pass on higher input prices to consumers.

 

In terms of my own response to all of this, I have been stepping up my exposure to financials, trebling my stake in Bank of Ireland and significantly increasing my exposure to RBS (which is now my third-largest portfolio position). The recent surge in the value of Irish government bonds prompted my Bank of Ireland move, given that BKIR held €5,945m worth of them at the end of June (up to €1.5bn of which were acquired following the LTRO earlier this year). As the notes to BKIR’s interim results show (see page 99), the vast majority of these are in the books on a ‘Level 1’ fair value basis, i.e. “valued using quoted market prices in active markets”. Given the recent lift in Irish bond prices, this should have a positive impact on Bank of Ireland’s NAV, given that “any change in fair value is treated as a movement in the [available for sale] reserve in Stockholder’s equity”. Elsewhere, in the case of RBS, the IPO of its Direct Line business and recent moves towards agreeing financial settlements for Libor and IT issues indicate that the narrative around the group may be about to radically shift, as I noted in a recent blog post.

 

(Disclaimer: I am a shareholder in Datalex plc) In other news, travel software company Datalex confirmed that interim CEO Aidan Brogan is to get the job on a permanent basis. This is a sensible decision. Aidan has been with the firm for almost 20 years, and his strong background in sales is likely to help Datalex build on its growing list of clients.

 

Elsewhere in the TMT space, Johnston Press has reportedly delayed its relaunch programme. You can read my recent piece on the firm here.

 

(Disclaimer: I am a shareholder in France Telecom plc) And in other TMT news, the team in aviate came up with an interesting angle on Apple’s latest toy, namely that “in the European launch only Deutsche Telkom and France Telecom were given the hallowed LTE version of the iPhone 5“. I must confess that what I know about ‘fashionable’ mobile phones could fit on the back of a postage stamp, so hopefully one of my kind readers will let me know if this is a significant advantage over other carriers or not!

 

In the energy sector, consolidation has been a big theme this year, as cash-rich majors have snapped up financially constrained small cap names with proven resources. This clip suggests that the trend has further to run (and indeed, assuming the latest QE moves push up oil prices, this will provide the large caps with even more cash to play around with).

 

In the blogosphere, Lewis profiled Impellam. Elsewhere, John took a good look at Rolls-Royce.

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Written by Philip O'Sullivan

September 15, 2012 at 12:01 pm

Market Musings 10/9/2012

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This is a bit of a hotchpotch of what has been catching my eye over the past few days.

 

To kick off with construction, Abbey announced the results of the mandatory offer from Gallagher Holdings. The latter has raised its stake in the housebuilder by 10.7ppt to 72.6%. This is not enough to force a compulsory acquisition of the balance of the shares, so the stock will retain its listing. In the run up to the deadline, I had struggled about what decision to take about my own holding in the company. While the bid from Gallagher represented a nice exit price on a stock I purchased for only €4.60 a share, it was pitched at a disappointingly wide discount to NAV. In the end, I elected to take the cash, on the grounds that I didn’t want to stick around in a stock that has now arguably moved from ‘quite illiquid’ to ‘extremely illiquid’ (!), which makes it unappealing to many institutional investors. However, I may well re-enter the sector in the not too distant future given that the long-term drivers of growth are very much intact (a very old housing stock, net inward migration, severe pressure on housing in the South-East of England).

 

In the food sector, Investec argues that Premier Foods faces ‘death or glory’ by 2014. Elsewhere, NCB issued very different (in tone) reports on Aryzta and its majority-owned associate, Origin Enterprises. On Origin, NCB argues that weather and FX should provide a tailwind to earnings, while on Aryzta, NCB makes a persuasive argument that it may not hit its 400 cent earnings target for 2013.

 

(Disclaimer: I am a shareholder in Harvey Nash plc) In the recruitment space, SThree released an interim management statement that revealed slowing growth. On an annual basis its gross profits rose 6% in Q3 2012 (in constant currency terms) of its financial year (i.e. to end-August), down from +15% in Q1 and +9% in Q2. Drilling down into the numbers we see it has experienced weakness in both the UK & Ireland and ICT, with other areas performing more resiliently. The slowdown in the headline growth rate was, unsurprisingly, explained by “the difficult macro economic backdrop”, but SThree’s resilient overall performance highlights once more the importance at this time of choosing recruitment stocks that offer diversification (both by industry segment and geographic), an attractive dividend and a strong balance sheet. This is what attracted me to recently buy into one of its peers, Harvey Nash. I hope to find the time to research all of the stocks in the sector that fit this bill over the next while.

 

(Disclaimer: I am a shareholder in Bank of Ireland plc and RBS plc) There were a few items of note in the financials space. I saw a very bullish MarketWatch piece on Bank of Ireland, which served as a reminder that while a lot of the domestic commentary is ‘doom and gloom’ oriented, many international observers are bulled up on Ireland Inc (Franklin Templeton’s bold Irish sovereign debt move is a good example of this, as is this favourable coverage from CNBC). In other sector news, RBS is planning to shut down its precious metals trading unit, while it has also ceased commodities research. The FT also reported that it is nearing a Libor settlement with US and UK authorities, which would remove another legacy overhang from the group, which remains on my watch list. Finally, I offloaded my second biggest holding, Standard Life, which has had a great run of late and is no longer (in my view) in ‘cheap’ territory.

 

(Disclaimer: I am a shareholder in Trinity Mirror plc) I was pleased to see that new Trinity Mirror CEO Simon Fox has been set very demanding bonus targets based on the share price performance of the group. It is good to see a remuneration committee flex its muscles in this regard, especially in a way that ensures investors’ and management’s interests are very highly aligned.

 

In the blogosphere, John Kingham says: “When I look at BT I see a company and an investment that screams mediocrity“.

Written by Philip O'Sullivan

September 10, 2012 at 2:40 pm

Market Musings 5/8/2012

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It looks like it’s going to be a quiet week ahead for scheduled Irish plc news, with H1 results from Kerry (Thursday) & Bank of Ireland (Friday) set to provide the main interest. I preview both of those below, along with providing a round-up of the other things that have caught my attention since I last blogged.

 

(Disclaimer: I am a shareholder in Bank of Ireland plc and AIB plc) The Sunday Independent’s Tom Lyons reported that AIB may receive as little as 50c in the euro from a sale of a portfolio of its relatively “better” quality Irish loans. While this certainly reflects the deterioration in the Irish property market, at the same time I can’t help but wonder if AIB’s relative heel-dragging on deleveraging may significantly cost the bank. The Irish financials were directed to offload billions of euro of loan assets, and of Ireland’s two main listed banks Bank of Ireland completed this task while incurring only an 8% average haircut, while AIB is only circa 70% of the way through its programme, with reports of 50% haircuts such as the above raising concerns for me on what the final bill may prove to be.

 

Speaking of Irish banks, Bank of Ireland issues its interim results on Friday. Given recent updates from AIB and RBS (Ulster Bank) I don’t think there’s going to be a lot of surprises in the statement. The main interest for me will be around the margin (AIB’s was weak, but Bank of Ireland has a chunky UK exposure so it should outperform), deposits (these should be comfortably higher given recent indications from the Central Bank on how the ‘covered banks’ are doing in this area), arrears and costs (I assume Bank of Ireland will follow the rest of the industry and announce more action on this front). In terms of my view on Bank of Ireland, given the economic backdrop I think things are almost certain to get worse before they get better, but I think a lot of this is baked into the share price which is trading at a circa 50% discount to what the brokers I’ve seen have penciled in for end-2013 NAV. That said, a firm catalyst for narrowing that gap is hard to identify with any degree of conviction. For me it’s a hold for now.

 

(Disclaimer: I am a shareholder in RBS plc) Sticking with the financials, I was pleasantly surprised to read that several banks, including Brazil’s Itau Unibanco, may be looking at a bid for RBS’ Citizens unit in the US. With RBS planning a sale of its Direct Line business later this year, any bidding war for another division in the group, assuming one materialises, would clearly be very shareholder-friendly.

 

Kerry Group reports its interim numbers on Thursday. The last update from the firm was its interim management statement back in May, in which the group guided EPS growth of 7-10% in 2012 (after the 11.1% seen in 2011). With several major global food companies having indicated slowing trends of late, Kerry is unlikely to report any different trends given that it is a key supplier into them. Therefore, the extent to which it can mitigate any pressure from this source with action on the cost side will be interesting to watch (last year Kerry made a number of acquisitions, notably Cargill’s flavours business and SuCrest, along with a string of other bolt-on deals, so presumably their integration has opened up multiple cost take-out opportunities across its global operations). In any event, with Kerry trading on a mid-teen PE multiple (and >10x EV/EBITDA), it’s not a stock I have any desire to own around here. Don’t get me wrong – Kerry deserves to be trading on such a multiple, but in my view the implied upside from here is too low for me to have any interest in buying it at these levels.

 

The London Olympics have seen some heroic performances so far from Team Ireland, and this week should hopefully see a few medals being secured by the team to leave behind a strong legacy from these games. Speaking of Olympic legacies, Beijing has shown how not to do it, with many of its facilities lying idle some four years on.

Written by Philip O'Sullivan

August 5, 2012 at 7:36 pm

Market Musings 4/8/2012

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The past week has been quite hectic, with two weddings and the deadline for completing a 200 page report for the company I’m on an internship with as part of my MBA studies to safely negotiate. Hence, blogging has been a necessary casualty of my lack of free time. So, what has been happening since my last update?

 

(Disclaimer: I am a shareholder in Ryanair plc) Ryanair released its Q1 results. These contained few surprises. The company is sticking to its FY net income guidance of a range of €400-440m which is reasonable in light of the early stage of its financial year. However, with the likes of Easyjet and Aer Lingus recently upping their forecasts, allied to Europe’s biggest LCC’s form for low-balling guidance (it upgraded its guidance twice in its last financial year) and healthy passenger numbers, I suspect the risks to Ryanair’s profits lie to the upside.

 

Elsewhere, as noted above Aer Lingus upgraded its FY earnings outlook in its interim results. Having previously said that 2012 profits “should match” the 2011 out-turn, it now says they will “at least match” last year’s performance. One aspect of the Aer Lingus results release that was particularly encouraging was the long haul performance – compared to the same period last year, in H1 2012 Aer Lingus’ long haul passenger numbers, load factors and yields all increased by 11.0%, 5.0% and 9.0% respectively. This is a magnificent performance given the tough economic backdrop and illustrates the success of Aer Lingus’ moves to leverage Dublin and Shannon, the only airports in Europe offering US pre-clearance, to win transatlantic customers whose journeys originated in other parts of Europe. This means that news of United Airlines terminating its Madrid-Dulles JV with Aer Lingus is not particularly concerning given that Aer Lingus clearly has sufficient demand to justify redeploying the Airbus A330 currently on the JV route to its own branded Ireland – North America routes.

 

(Disclaimer: I am a shareholder in BP plc) In the energy space BP released its interim results. Market reaction was extremely downbeat, but I am (perhaps foolishly?) taking a contrarian view to this and assuming that its run of disappointments means that management will either: (i) come up with shareholder-friendly goodies (a large buyback, chunkier dividends, sensible M&A) to revitalise the share price; or (ii) come under irresistible pressure from investors to unlock the value in the firm through a break-up of the company.

 

(Disclaimer: I am a shareholder in Trinity Mirror plc) In the TMT segment Trinity Mirror erupted this week, with its share price gaining circa 40%, helped by strong interim results. Regular readers of this blog will know that I’ve been an uber-bull on this name for a while, based on my view that it offers a compelling mix of: (i) Very strong cashflows; (ii) Substantial tangible asset backing; (iii) Rapid deleveraging facilitating a re-rating for the equity component of the EV; and (iv) An absurdly low (and unwarranted) valuation. I’m pleased to see that my central thesis is playing out, with the first six months of 2012 bringing a £60.5m reduction in its combined net debt and pension deficit, an amount equal to 75% of what TNI’s market cap stood at on Tuesday. The catapulting of its share price since then indicates that the market may be starting to wake up to this reality. I suspect the TNI story has a lot further to run – if you annualise the H1 earnings the stock is trading on a forward PE multiple of only 2.3x!

 

In the food sector Greencore issued an upbeat trading statement which revealed healthy underlying volume growth allied to management expressing confidence that it can meet full-year earnings expectations.

 

(Disclaimer: I am a shareholder in AIB plc and RBS plc) Switching to financials, I was surprised to read criticism of AIB’s announcement that it is to close a number of branches as part of its efforts to right-size its cost base. As its recent interim results showed, AIB is currently loss-making before you even take provisions into account – which is a clearly unsustainable position. Moreover, the vast majority of transactions these days are done using ATMs, cards and internet banking. Due to all of this, AIB (and indeed its domestic competitors) simply does not need as many branches as it did before.

 

Elsewhere, RBS issued an in-line set of interim results. While LIBOR, IT problems and a daft total nationalisation suggestion by elements within the British government have dominated headlines around the group, it is continuing to make impressive progress in terms of repairing its balance sheet. Investec’s Ian Gordon makes some good points around the numbers (and indeed the outlook for RBS) here. One aspect of the results that I found concerning was Ulster Bank’s impairments. RBS’ Irish unit saw impairments widen to £323m in Q2 2012 from £269m a year earlier, with mortgages to blame for this worsening trend. This has ominous read-through for the other banks operating in the Irish market.

 

(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) In the packaging space Smurfit posted another great set of results, with Q2 EBITDA of €255m coming in right at the top of the range of analyst expectations (€236-255m). Management reaffirmed its full-year EBITDA and net debt targets, but I suspect the risk to both is to the upside given that the two largest European packaging firms, Smurfit and DS Smith, have both recently announced chunky price increases.

 

(Disclaimer: I am a shareholder in Abbey plc) There was more good news for my portfolio from the construction sector, with Abbey’s majority shareholder, Charles Gallagher, making an offer to buy out the minority shareholders in the company. The price being offered isn’t exactly stellar, at 0.86x trailing book value, but it’s one I’m happy to accept given that it represents a 42% return on what I paid for the shares in 2009. If only the rest of my investments worked out so well!

Written by Philip O'Sullivan

August 4, 2012 at 8:21 am

Market Musings 21/7/2012

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Since my last update the latest corporate developments have been mostly about Irish companies looking to either move in or move out of other countries. Let’s examine what’s been going on.

 

(Disclaimer: I am a shareholder in Independent News & Media plc) INM confirmed that it has received “informal and unsolicited expressions of interest” for its South African business. With the group’s main lender having reportedly categorised INM as one of its “most challenged corporate relationships“, divestments to strengthen its balance sheet appear to be a must. At the end of 2011 INM had net debt of €427m. If INM were to offload South Africa and its APN stake for €350m (based on media reports on South Africa could fetch and the current market value of APN), this would cut net debt to circa €75m. Add in the €125m current market cap INM is on and it would have an enterprise value of €200m against which the firm would have All-Ireland assets which produced sales and operating profits of €363m and €46m respectively in 2011, which was clearly a tough year for the media sector here. While you would have to adjust the above profits for INM’s group overhead costs, it seems to me that the market is applying a very low multiple to its Island of Ireland division. Divesting its overseas units should draw attention to this and potentially lead to a dramatic re-rating for INM.

 

DCC issued a solid trading update on Friday, which revealed that its Q1 performance was “ahead of budget”. However, management is sticking to its previous full-year earnings guidance, which is reasonable given how heavily skewed its profits are towards the second half of its financial year. To me there was little in the release to change the narrative around the company – DCC’s proposition to investors is a strong balance sheet and a good mix of assets, yielding consistently high returns, trading on an undemanding multiple.

 

(Disclaimer: I am a shareholder in CRH plc) Press reports suggest that CRH may be considering a €1bn+ deal in India. The cement assets in question have a combined capacity of 9.8m tonnes and they would more than treble CRH’s presence in the market if acquired. We’ll have to wait and see if there’s more to this story.

 

(Disclaimer: I am a shareholder in Marston’s plc) TMF’s Tony Luckett wrote an interesting piece on the UK pub sector – only the strong will survive. In it he cites research from CAMRA,  suggesting that the pace of pub closures in the UK may be leveling off. This is an encouraging claim, and it’s something that I’ll keep an eye on to see if the trend continues to improve.

 

(Disclaimer: I am a shareholder in AIB, PTSB and RBS) The Irish banking sector was in focus in recent days. PTSB gave a non-update on its restructuring plans, which contained nothing that wasn’t already in the public domain. My view on PTSB remains that, unless it can heroically engineer a large-scale recapitalisation to pave the way for a step-up in its lending capacity, it is very likely to remain a marginal player in the Irish banking market. I struggle to see why it wasn’t shunted into AIB. Today’s press asks if RBS’ Ulster Bank is gearing up to leave Ireland – I would think this extremely unlikely given the difficulties that would be involved, particularly in terms of time and costs – the problems of moral hazard, deposit flight, extricating the bank out of lengthy contracts, redundancies and so on would make this a very messy process (think of the hassle Lloyds has had with BOSI). I suspect that while Ireland is going to be down the pecking order in terms of capital allocation from RBS’ head office over the coming years, the much lower competition relative to before in the banking sector here means that margins on new lending should be quite attractive whenever the domestic economy and the financial system are restored to vigour. As the third biggest bank in Ireland, RBS should find itself well placed to exploit this future opportunity.

 

In the insurance sector FBD Holdings appointed UK firm Shore Capital as its new joint broker following the sad demise of Bloxham. This is a curious move given that FBD’s core operations are all in Ireland – might FBD be considering a push into Britain?

 

And finally – I was interested to read that 48 tonnes of silver bullion were recovered from a shipwreck off the west coast of Ireland.

Written by Philip O'Sullivan

July 21, 2012 at 1:37 pm

Market Musings 16/7/2012

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Since my last update there have been quite a few developments around the banking sector. The Irish banks’ reliance on monetary authorities for funding rose marginally in June, but it remains 32% below peak (€187bn in February 2011) levels. Elsewhere, UBS put together an interesting table showing credit and deposit trends across Europe – the deleveraging process for households in Ireland is especially acute relative to other EU member states, while the deposit trends are disappointing, especially given the competitive rates the banks are offering to savers. On that note, with deposit rates looking set to continue to fall as the Irish banks work towards rebuilding their net interest margins, I wonder if this might lead to more deposits moving out of the country over time. Time will tell.

 

(Disclaimer: I am a shareholder in Bank of Ireland, AIB and Permanent TSB) Speaking of Irish banks, I had a look at the liquidity of their shares after noticing a few comments about abnormal price moves. Bank of Ireland has a free float of 85%, compared to the circa 0.2% of AIB and PTSB that is outside of State ownership, so it was no surprise to see that the average daily volume of shares traded in Dublin in Bank of Ireland (33m) is 44 times that of AIB (750k) and 98x PTSB (337k). Considering that, based on where PTSB’s share price closed on Friday (2.5c) the average daily volume traded in that stock is worth less than €10,000 you would want to be careful not to read too much into any daily movements in its share price. The same applies for AIB, where on the same criteria less than €50k worth of stock is traded each day in Dublin.

 

(Disclaimer: I am a shareholder in RBS plc) Elsewhere in the financial space RBS’ planned IPO of Direct Line was the subject of significant media coverage in recent days. Press reports over the weekend suggested that leading private equity firms are circling around RBS’s insurance operation, which generated operating profits of £454m on revenues of £4,072m last year. I think a trade or private equity sale of this business, which is valued at £3-4bn, would be in shareholders’ best interest – particularly given that, with 11 investment banks lined up to advise RBS on an IPO, the fees involved would be substantial if it goes down the listing route.

 

(Disclaimer: I am a shareholder in Independent News & Media plc) Switching to media, TCH announced that it is considering restructuring its debt. The group operates national and local newspapers along with several local radio stations and its quoted competitors include Independent News & Media, UTV Media and Johnston Press. Should any restructuring move lead to closures of underperforming assets there will presumably be opportunities for those three, along with TCH’s unquoted peers, to gain market share.

 

(Disclaimer: I am a shareholder in BP plc)  In the energy space, I am concerned by a report that an Argentinian province is threatening to revoke a licence held by BP’s joint venture, Pan American Energy. The asset in question is Argentina’s largest oil field, while the recent nationalisation of Repsol’s business in that country shows that Argentine politicians are not above taking actions that will ultimately prove ruinous to FDI inflows.

 

Investors Chronicle’s John Ficenec wrote a good piece on the recruitment sector. I’ve been tempted by some of the cheap valuations in the sector of late but am torn by the macroeconomic headwinds. Of course, if there’s any hint of these abating the sector should significantly re-rate, but timing that entry point is easier said than done!

 

(Disclaimer: I am a shareholder in Total Produce plc) In the food sector I note a report saying Total Produce has made a bolt-on acquisition in France. There’s no official word from the company, but assuming the report is accurate I’m guessing the business should add 1% to TOT’s topline with a slightly lower effect (due to: (i) finance costs; (ii) France having a 33.3% corporate tax rate, versus TOT’s current 19.3% effective rate; and (iii) synergy benefits will presumably be lower than they would be in areas where TOT has a more substantial presence) on earnings.

 

Finally, with the US Presidential election only a few months away, I was interested by the results I got on this questionnaire that matches your political views to those of the candidates – supposedly I’m 93% in-tune with Gary Johnson and 88% with Ron Paul! Why don’t you take the questionnaire and see where you stand.

Written by Philip O'Sullivan

July 16, 2012 at 7:50 am

Market Musings 7/7/2012

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(Disclaimer: I am a shareholder in Ryanair plc) Since my last update, two of Aer Lingus’ shareholders came out to say that they will not be supporting Ryanair’s approach for the company. Etihad, which owns just under 3% of the carrier, said “we are not selling“, pledging its support for management, while elsewhere investment fund Matterley, which has a circa €1m stake in Aer Lingus, said Ryanair’s indicated bid level “still undervalues the asset base of the company, before taking account of the valuable slots at Heathrow”, adding “accordingly, the Fund has retained a significant investment”. While these are interesting developments in terms of providing more colour on investors’ intentions, the market is giving us a clear signal on its perception of Ryanair’s chances of success with the shares closing yesterday at €1.07 – some 18% below the price Ryanair says it would be prepared to pay for Aer Lingus.

 

Staying with Irish plcs, investment fund TVC Holdings issued an update at its AGM yesterday. Management note the wide (29%) discount the shares are trading at relative to its NAV, which I feel is unwarranted given its impressive investment record in recent years. Looking ahead, cash-rich TVC says it believes “there are restructuring opportunities in Ireland and the UK where companies with excessive debt need to raise new equity at attractive terms for new investors”. In terms of opportunities within Ireland, I wonder if TVC will look to leverage its experience in the media sector (it is UTV Media’s largest shareholder with an 18% stake) to help out some of the more geared media players here?

 

(Disclaimer: I am a shareholder in Datalex plc) Speaking of Irish TMT stocks, I know that I’ve been pushing the bull case for Datalex for a while now, but even I was taken aback by a piece in last weekend’s Sunday Times. The newspaper interviewed United Continental CEO Jeff Smisek, and in the interview he had a go at what he termed the ‘oligopoly GDSs’ such as Amadeus, saying they had “underinvested in their product, as oligopolies always do”. He went on to say: “Our technology is more potent than theirs and we can’t wait for them to catch up”. And who helps United with its online shopping and reservations worldwide? Step forward Ireland’s Datalex.

 

(Disclaimer: I am a shareholder in RBS plc) There was a lot of news around RBS in recent days. Despite recent setbacks, the bank reaffirmed its target of exiting the APS programme by the end of this year. In theory this will save RBS £500m annually in APS fees, however, the costs of the capital implications of an APS exit are trickier to quantify.  Elsewhere, Bloomberg ran an interesting piece on RBS’ efforts to shrink its non-core loanbook. This is an often overlooked part of the group’s story – since 2008 RBS’ non-core assets have shrunk by 70%, or £238bn, which is an impressive performance given the difficult backdrop. However, offloading the remaining 30% is likely to prove to be more a challenge in the near term given how much of it is concentrated in markets where this is a relative paucity of buyers such as Ireland (Ulster Bank’s share of RBS’ non-core loanbook was £14.4bn at the end of 2011). Overall, I continue to monitor RBS closely but I see no reason, given the present uncertainty around it, to increase my exposure to it just yet.

 

Ireland’s so-called ‘bad bank’ NAMA said that it no longer expects to make a profit. Given this, shall we say, “tempering of expectations”, can we still be confident of IBRC’s (Anglo Irish Bank & Irish Nationwide) guidance on how much it will ultimately cost the taxpayer?

 

(Disclaimer: I am a shareholder in BP plc) Bloomberg yesterday reported that BP’s Russian partners are only willing to buy half of its stake in the TNK-BP venture. Given how much trouble BP has had as a 50% shareholder in that venture, I cannot see a scenario where BP is happy to reduce its holding to a minority one. With Gulf of Mexico related payments nearing their end, a successful departure from TNK-BP would equip BP with the financial firepower to consider significant acquisitions elsewhere.

 

(Disclaimer: I am a shareholder in Abbey and ICG) In the blogosphere, Richard Beddard covered the current focus on income stocks. Given the present uncertainty in the markets, it is unsurprising to see people touting income over the naked pursuit of capital gains at this time.  What I found particularly interesting in his post was the comment about companies’ reluctance to invest. This is a definite concern of mine at present – we’ve seen many cash-rich Irish plcs, including Abbey and ICG, launch share buybacks in recent times – and while this is a ‘low risk’ way of flattering earnings per share, I wonder would shareholders’ interests be better served in the long-run through the money being used to support the expansion of those businesses. In the case of Abbey, distressed landbanks of housing are hardly difficult to find in this market – and Abbey operates across three countries (here, the UK and the Czech Republic). For ICG, might it consider a move for something like the Isle of Man Steam Packet Company, which was taken over by the banks (for which it is presumably a non-core asset!) last year? Or given how many PE deals took place during the boom years in the port infrastructure space, particularly in the UK, might there be some distressed assets there worth picking up?

 

Staying with the blogosphere, John Kingham wrote a good piece asking: “When is a good time to invest in the stock market?“. His words are worth sharing with any retail investors you know – the tragedy of the market is that often it’s the private investor who is last to buy into the rally and first to sell at the trough.

 

And finally, also in the blogosphere, the excellent Kelpie Capital presents the bear case for UK housing.

Written by Philip O'Sullivan

July 7, 2012 at 9:14 am

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