Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Toscafund

Market Musings 14/1/2012

with 6 comments

From  a macro perspective, a few things have caught my attention in recent days. The British government published details of the 16 million square metres of property and land it owns across the UK – six times the area of the City of London. With significant excess capacity (550 of the 13,900 properties are vacant – while reading the article it’s clear that many of the ‘occupied’ ones are far from fully utilised) I assume that this will be an area of focus for generating new revenues / saving money for the Exchequer.

 

Now here’s something worth looking at – UK hedge fund Toscafund believes that a Greek exit from the eurozone would result in European social unrest, hyperinflation and a military coup.

 

Switching to equities, the UK retail sector is something that I’ve written extensively about in the past. Following this week’s sharp share price fall by Tesco, a lot of people are asking whether now is the time to pull the trigger and buy into the sector. Here are some perspectives from John Kingham, who asks: Are Marks & Spencer Shares Good Value? and John McElligott, who writes about many of the UK’s biggest listed companies in that space. I should add that I added some UK consumer exposure into my portfolio recently, having acquired a stake in pub group Marston’s, which I’ve written about before here.

 

Staying with UK equities, Calum has written a good piece on the listed housebuilders, that’s worth a read.

 

(Disclaimer: I am a shareholder in RBS plc) RBS has been in the spotlight in recent days. It announced 3,500 redundancies, with 950 jobs going at its Irish operation, Ulster Bank. While obviously these job losses are a tragedy for those involved, they are far from unexpected given the well-documented macro challenges facing the group. With almost indecent haste some brokers, including Seymour Pierce, have been rushing to give the shares a push on the back of the restructuring, and the price motored ahead on the back of this, closing at 24.1p on Friday having finished the previous week at 20.5p. I have a well-below-water legacy position in RBS but I won’t be rushing to add to it (or ‘average down’!) just yet – I would want to see a much brighter macro outlook before I’d consider doing that.

 

(Disclaimer: I am a shareholder in Ryanair plc) Ryanair announced a 25c per passenger charge to cover what it describes as a “new EU eco-looney tax“. Based on its current run-rate of 76m passengers a year this will raise at least €19m per annum. What’s significant about it is that it serves as a reminder that even an extra 25c in revenue per passenger can produce a chunky bit of change for Europe’s largest low cost carrier. I should also point out that Ryanair’s ‘fill the plane’ pricing model and its young fleet of aircraft means that it will always have a lower per passenger charge than its European competitors where green taxes like this are concerned, which underlines its competitive advantage. Staying with airlines, I was interested to read in Friday’s FT that of the 1.2bn people in India, only 55m flew in an airplane last year. Now that’s what I call a growth opportunity!

 

In the energy sector, Dragon Oil announced that it exited 2011 producing 71,751 barrels of oil per day, which is slightly ahead of its 70k target. Elsewhere, I found two pieces of interest in this oil sector note by Edison. The first is the chart on page 3 which rates oil stocks on an EV/BOE basis – this shows that some companies’ oil reserves are being valued at close to nothing (or in some cases less than nothing). The obvious health warning on that chart being that investors need to look at the companies’ ability to bring those reserves into production in a shareholder friendly way before rushing into all of those names. The second thing of note in the report is the question the analysts pose about the potential for consolidation in the sector, which echoes Paul Curtis’ views from two weeks ago.

 

(Disclaimer: I am an indirect shareholder in DCC) In the support services space, NCB published a research note on DCC. While they have trimmed their price target, they are retaining their buy recommendation, which I agree with – DCC is very cheap given its undoubted quality, stable business model and proven track record of creating shareholder value.

Written by Philip O'Sullivan

January 14, 2012 at 4:15 pm

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