Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

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Market Musings 15/11/11

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This has been a quiet day (by the current standards!) in terms of corporate newsflow. Despite the lack of activity on that front, we’ve also seen the good and bad side of politics, along with the first of a number of my side-projects coming to fruition.


I got the latest UBS strategy report emailed across to me (I cannot stress enough how grateful I am to those of my readers who send me things like that!) this morning. I note that the investment bank has cut its 2012 FTSE earnings growth forecast from 3% to 0%, adding that it believes that investors are unlikely to pay-up for profits in the near term. On their numbers the FTSE’s 2012 dividend yield is a healthy 4.2%. This downward earnings revision surely can’t come as a surprise to anyone, given the general tone of trading updates in recent times, but with the FTSE PE ratio at undemanding levels (even when taking the downward risk to earnings estimates into account) I see no reason to reduce my UK exposure here, especially given the attractive yields on offer.


(Disclaimer: I am a shareholder in Trinity Mirror plc). Regional newspaper publisher Johnston Press reported improving UK advertising & circulation trends, helped by easier comparatives. This follows on from the recent positive update by Trinity Mirror and suggests that things are looking a little brighter for the sector, but as ever the fragile UK consumer backdrop cannot be ignored.


Now here’s something interesting – speculators have lifted bullish raw-material bets to a 7 week high.


I’ve provided the commentary for the latest report on the rental market by Ireland’s largest property website,


Some encouraging political news – Ron Paul, whose strong economic credentials I’ve noted before, looks like he could win the Iowa caucus, which would give a huge lift to his campaign. If you’re unfamiliar with his views, make yourself a coffee and watch this video.


Sadly, this was also a day in which we saw the worst in politics, with Irish Minister of State Willie Penrose resigning over the closure of a barracks in his hometown. His move is a deeply cynical one, and reflective of a narrow-minded, parochial and short-termist mindset that has played a key role in getting Ireland into the trouble it’s in. The Exchequer deficit for the first 10 months of 2011 was €22bn. We simply can’t afford to base troops in Mullingar to defend County Westmeath from non-existent threats.


Finally, to end on an uplifting note. Those of you who are into sport will no doubt have heard of Munster’s incredible last-ditch victory over the weekend. The commentary on this video really captures the “who dares wins” nature of the win, while Gerry Thornley in the Irish Times, as ever, sketches a perfect picture of how the entire game played out.


Written by Philip O'Sullivan

November 15, 2011 at 7:58 pm

Market Musings 19/9/11

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The demands of the MBA and my work for Business & Finance (I’ve two articles due this week!) have meant that I haven’t been following newsflow as closely I would have liked to, but despite that what I’ve missed out on in terms of quantity has been more than compensated for by the quality of what I have seen!


Firstly, this is something to watch out for regarding the food sector. I note that, ceteris paribus, base effects for food inflation will become much more benign in Q4 of this year. Obviously in absolute terms agri-commodity prices are at elevated levels, but a leveling off in the inflation rate could see a more positive tone from some food companies between now and year-end. Speaking of food companies, Irish investors should keep an eye out for full-year results from Origin Enterprises on Thursday. Given the positive market backdrop for its core agri-services unit, I expect an upbeat tone to results, while investors will also be looking for an update on how the re-organisation of its food unit is going along with news on how the integration of its recently acquired agronomy and fertiliser units is progressing.


I’ve warned about this before – The Daily Telegraph writes that China faces its own subprime credit bubble crisis. Another person who shares my concerns around China is Hugh Hendry. I previously posted this video that sets out some of Hendry’s concerns, and I was unsurprised to read of how well his fund is doing this year on the back of his bearish conviction on China.


I was rather exasperated to read some online criticism of the Irish government’s decision to award a roadbuilding contract to a foreign concern. The criticism started and finished with the nationality of the business that secured the contract, which led me to wonder aloud: Do the people who criticise the Irish government for awarding contracts to foreign companies also complain when Irish firms win foreign contracts? There are two aspects to this really. Firstly, the Irish government has a moral obligation to taxpayers to deliver value-for-money on contracts, so there’s no sense in passing on a cheaper alternative solely to give a dig-out to a domestic firm. As an aside, several people made the point to me that successive governments’ procurement record hasn’t been particularly encouraging (PPARS, e-voting etc.), so obviously there’s scope for improving the entire tendering process for State contracts. Secondly, many Irish firms have proven successful at winning contracts from foreign governments, particularly on the IT side, while elsewhere did you know that CRH is the largest asphalt provider in North America? Adopting a “Little Irelander” procurement policy could endanger some of the international work won by our own companies. So, let’s not cut off our nose to spite our face.


UBS provided an update on its rogue trader problems. I wrote about this on Saturday morning, and following on from my comments about the failings of its internal auditors I got an interesting comment from a regular reader of this blog. He makes the valid point that:


“Having worked for a large financial institution as an internal auditor, I can tell you internal auditors often spot things like this and are put under tremendous pressure, up to the point of threatening dismissal, to forget about these issues and move along.” 


While of course there’s no suggestion that such a thing happened in UBS in this instance, you’d wonder how often has a scenario such as the one my correspondent has sketched out happened in other institutions.


The Financial Times argues that IAG (British Airways & Iberia) is unlikely to bid for Aer Lingus. If IAG are out of the picture, I can’t see the Irish government finding an acceptable (from its perspective) bidder for its 25% stake anytime soon.


Some MBA pointers that I found interesting. Firstly, applications for full-time MBAs have fallen for a third successive year, which is no surprise given economic conditions. Secondly, my beloved Smurfit Business School was featured in today’s Financial Times.


My old friend (or should that be young friend?!!) Sam Bowman had a brilliant op-ed in today’s City AM newspaper. He is a must follow on Twitter.


Another brilliant read is this blogpost on 5 cheap UK stocks by Expecting Value.

Market Musings 17/9/11

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Since my last update we’ve seen some heroics from the Irish team at the Rugby World Cup, co-ordinated central bank moves, a rogue trader and good news for Greencore.


Probably the biggest news this week was the announcement of co-ordinated central bank intervention by the Fed, BoE, ECB, SNB and BOJ to boost liquidity. In recent months there had been a number of unilateral moves by central banks (the Swiss monetary authority’s move to devalue the franc being one example) so it’s good to see the powers that be working together again. The markets welcomed this liquidity move, which is timely (and, let’s be honest, necessary) given the concerns around European banks.


News of a fresh rogue trader scandal emerged shortly after I finished writing my last entry. In a sign of the way things go these days, the suspect in this case already has a wikipedia entry and a number of fan clubs on Facebook! Disturbingly, his alleged actions go back as far as 2008, which if true raises obvious questions about UBS’ risk management systems and both its internal and external auditors. I was amused to see the ratings agencies, who are always the last to the party, suggest that they may downgrade UBS on the back of this.


We had the folly of Tim Geithner visiting Europe this week to lecture our political overlords, with no hint of irony, on how things should be done. I would concur with Juergen Stark’s comments.


I was drawn into a rather circular debate the other night about the provision of universal benefits in Ireland. We have a situation here where roughly half of the Irish population is in receipt of at least one social welfare payment. Is it any wonder that the total social welfare budget for 2010 (€13.2bn) was more than the government’s total income tax take (€11.3bn)? At a time when the State is teetering on the verge of bankruptcy, we simply cannot continue to support a system where people can qualify for benefits regardless of their means.


(Disclaimer: I am a shareholder in Uniq plc) Turning to corporate news, Uniq released its last-ever set of interim results yesterday. It will shortly be taken over by Irish-headquartered Greencore plc. Shareholders in the latter should be pleased with the strong performance by Uniq’s food-to-go unit, which is the area of most overlap with Greencore’s operations.


Speaking of plcs, Expecting Value had a great blog piece on Barratt Developments, which I’d encourage you to take a look at.


Finally, what an amazing win for Ireland in the Rugby World Cup today! I think it’s only fitting that the last word should go to Ronan O’Gara – it really is “a great day to be Irish”.

Written by Philip O'Sullivan

September 17, 2011 at 5:50 pm

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