Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Ronan Lyons

Market Musings 27/8/2012

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(Disclaimer: I am a shareholder in AIB, Bank of Ireland and PTSB) Since my last update I was pleased to see that deposits at Ireland’s covered banks (AIB, Bank of Ireland, PTSB) were +10% year-on-year in July 2012. This is a helpful vote of confidence in the system, given that it suggests that overseas deposits (given the sclerotic domestic economic situation) are returning to the Irish financials.


Speaking of Ireland Inc, there has been an intense focus in recent days around the possible introduction of a property tax. Ronan Lyons, who is the most authoritative voice on the Irish property sector, has written a good piece outlining the different considerations around such a measure. I agree with him in principle that we should have such a tax, particularly given that too much of our tax revenues are dependent on flows instead of stock. I say ‘in principle’ because I have difficulty in seeing how Irish people can shoulder yet another tax at this time – we currently have a situation where more than 1 in 5 mortgages are in trouble, while more than 1 in 7 people in the labour force are out of work. Throw in the effects of rising taxes over the past few budgets and falling incomes and I think we could be facing a scenario of mass evasion / people (in many cases justifiably) pleading inability to pay similar to the household charge debacle from earlier this year. Some have argued that a modified ‘property tax’ taking into account incomes should be introduced, but that would in practice only amount to yet another income tax, which will act as a disincentive to work (given the already elevated marginal tax on incomes in Ireland).


In the energy sector, I was unsurprised to see a surge in applications for UK North Sea licences following the British government’s reversal of its previous anti-investment stance, which I had been critical of. I hope to do some work on the firms focused on the UK continental shelf (Xcite Energy in particular seems to have a lot of fans) over the coming weeks.


In the pharma space, there was an interesting article in The Irish Independent around the prospects for a sale of Elan Corporation that’s worth checking out.


(Disclaimer: I am a shareholder in Ryanair plc) In the airline sector, the Irish government made the astonishing revelation that it has yet to formally discuss a sale of its stake in Aer Lingus to Etihad. Considering that a sale of State assets has been agreed with the Troika as part of Ireland’s “bail-out” and Etihad having recently signaled that it may also bid for part of Ryanair’s stake, I would have imagined that Dublin wouldn’t have been slow out of the blocks to have proper talks with the Middle Eastern carrier. This is especially so given that Etihad can effectively only buy either the government’s stake or most of Ryanair’s holding, because even though as a non-EU carrier it can, in theory, buy up to 49% of Aer Lingus, in practice Irish stock exchange rules which say you have to bid for the whole company if you go above 29.9% rules this out for the time being at least (there are some ways of circumventing this, but they would likely prove cumbersome to execute in the short-term).


Finally, I was sorry to read that Calum has closed his blog. There is a dearth of high quality blogs in the UK and Ireland covering the stock market and the demise of yet another one is a great shame.

Written by Philip O'Sullivan

August 27, 2012 at 10:46 am

Market Musings 11/11/11

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Markets are going better on optimism around regime change in Greece and Italy, but I suspect this positive sentiment is a little premature given how often we’ve been let down by Europe’s political class. We’ve also seen some political pressure applied to the Irish financial sector, which is a case of “Robbing Peter to pay Pól”. Finally, the Irish blogging sector has a great new entrant, more of which anon.


(Disclaimer: I am a shareholder in AIB plc) 99.9% State-owned AIB announced that it has u-turned on its previous decision not to pass on the recent ECB rate cut after being leaned on by the government. The bank’s previous stance had been categorised as Scrooge-like behaviour, but in reality, as economist Ronan Lyons says, it represents “a win for mostly pre-2004 borrowers at the expense of taxpayers“. By holding back AIB’s ability to return to profitability and rebuild its capital, this exposes taxpayers to the risk of having to inject even more money into the bank down the road.


(Disclaimer: I am a shareholder in Bank of Ireland plc) Elsewhere, Bank of Ireland released a solid trading statement earlier today. One broker note I saw states: “it reads like it’s steadying the ship”, which I think is a reasonable summation. I was pleased with the improvement in the LDR (from 164% in June to 153% at end-October) and the stabilising NIM. Of course, the big unknowns are what happens if the eurozone crisis deepens and/or the Irish government gets even more ‘hands on’ with the financial sector, so let’s not count our chickens just yet!


Staying with corporate newsflow, Carr’s Milling released full-year results earlier today that confirmed a buoyant agri-sector in the UK, which has positive read-through for Irish listed Origin Enterprises.


(Disclaimer: I am a shareholder in Total Produce) Finally, I was delighted to learn earlier today that there are now three Irish blogs focused on equities. In addition to mine and John McElligott’s ‘Value Stock Inquisition‘, you can now follow Wexboy’s value investing blog. He has a great post on Total Produce, which I’m a big fan of, that’s really worth a read. Be sure to bookmark his site.

Written by Philip O'Sullivan

November 11, 2011 at 6:40 pm

Market Musings 21/9/11

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Since my last update we’ve seen alleged Ponzi schemes, gold bullion vaults that are running out of space, a deterioration in Ireland’s competitive position and quite a bit of Irish corporate newsflow.


Given the perilous state of public finances across the Western World, wholesale reform of welfare systems is something that is an inevitability, regardless of the ideological persuasion of governments. This chart by the always brilliant “Tyler Durden” (!) at Zerohedge gives a clue about the inverted welfare pyramid that is forming in developed economies as demographics turn nasty. RTE’s Emma McNamara tweeted the following this morning:


Irish Life’s Gerry Hassett: Workers to retirees 6:1 now; will be 2:1 in 20 years. 



…which goes to show that Ireland is no different. Speaking of Ireland, Ronan Lyons had an interesting piece on welfare spending yesterday. He identifies one way of saving €700m, but as is inferred by the opening paragraphs of his blogpost, Ireland needs an 11 digit fiscal adjustment, not a 9 digit one.


The Open Republic Institute collates Irish data for the Economic Freedom of the World report. It reveals that Ireland has plummeted 14 places in just a year to become only the 25th most free economy. This is a very worrying development, especially given the way FDI migrates to freer countries, and the way Ireland urgently needs more investment to kick-start the economy.


(Disclaimer: I’m a shareholder in PetroNeft plc). We got a good bit of newsflow from PetroNeft in the past 48 hours. Firstly, the company reported a mixed set of interim results yesterday, but it has followed this up with the announcement this morning that it has discovered a new oil field. For me, PetroNeft has been a Jekyll and Hyde story this year, with production undershooting but new discoveries seeing upward revisions to reserves. This isn’t as bad as it could be – I much prefer the way things are to, say, if PetroNeft was exceeding production targets but cutting estimates of its reserves! However, if management can iron out the production shortcomings we could see a big upward move in the share price (PetroNeft is ridiculously cheap on an EV/BOE basis). It’s a stock I’d definitely consider buying more of.


We saw some more share buyback activity on the ISEQ yesterday, with Fyffes the latest plc to buy its own shares this year. It joins Ryanair, Abbey and United Drug in doing so. The trade-off to more share buybacks by Irish plcs, however, is that it suggests reluctance towards stepping up M&A activity in these uncertain times.


The IMF cut its global growth forecasts yesterday, which prompted frenzied commentary on financial sites and much of the media. However, this downgrade should not have come as a surprise to anyone given the blatantly obvious deterioration in the economic situation in most large countries in recent months.


(Disclaimer: I am a shareholder in France Telecom plc). I was pleased to see France Telecom engaging in more repositioning of its portfolio, with the planned sale of its Swiss unit and acquisition of a  firm in the (hilariously named) “Democratic Republic” of the Congo. I bought France Telecom years ago for around €17/share and have enjoyed fat dividends (current payout is €1.40/share) since then, so I’m not overly cross with its current share price (it’s just under €12 this morning). While I am pretty certain that the dividend will be cut in the medium term, I note that a dividend of, say, €1/share would mean a yield of 8.3%, which is pretty good by any measure.


Here’s Peter Schiff, who I had the pleasure of meeting last year, giving an economics masterclass to Congress last week. Schiff makes a good deal of money from trading gold, so he will no doubt be reading today of how gold bullion vaults are running out of space.


Things are getting worse for Full Tilt Poker. A US attorney has alleged that the firm was operating a Ponzi scheme.

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