Liams last Post : At Least markets tried to rally...but then...

Good Afternoon ,

After the blow out on the downside last night European markets tried to open better this morning but the rally was short lived. 23 minutes is all it took for the ISEQ to get back to last nights close but the market did bounce to do straight to a session high at 08:50 am before capitulating to cross into negative territory at 9.18am and with a brief flirtation with yesterdays closing level the market has remained resolutely in negative territory all day. Indeed the market has range traded with a series of little sucker rallies with lower lows and lower highs throughout the day.

In Europe the brighter opening had given way to negative territory after 6 minutes though the sharp drop was stabilised at around 10am and just as in Ireland the market retraced to briefly flirt with positive territory before retesting the session lows off -2% and remained in a range for the rest of the day
The FTSE too mirrored the performance of the rest of Europe and it too closed over 1% lower.

The German Finance Minister Peer Steinbrueck yesterday and again today spoke publicly about the fact that some of the 16 Eurozone countries are ‘getting ito difficulties ‘ and that these countries may need help. He sent further today and said that Germany would show its ability to act to prevent a crisis in the Eurozone prompted by the sharp widening of the CDS spreads on Irish , Greek and Spanish government debt.

The EU commission made some hard hitting comments on Irelands stability programme which envisages a progressive reduction of the Government deficit to below the 3% of GDP reference value in 2013, assuming a recovery of economic activity after 2010. The EU Commission said that the growth scenario is somewhat optimistic and the consolidation measures presently lack detail. Further risks stem from the measures in place to support the financial sector, in particular bank guarantees and, concerning the debt ratio, the possibility of further capital injections or nationalisations of banks. And the commission went on to invite Ireland to (i) limit the widening of the deficit in 2009 and specify and rigorously implement a substantial broad-based fiscal consolidation program for 2010 and beyond; (ii) in order to limit risks to the adjustment, strengthen the binding nature of the medium-term budgetary framework as well as closely monitor adherence to the budgetary targets throughout the year. I have to say this is pretty direct advice and interesting that the Commission is not holding back in its views.

The other developing theme and you guess it , not a positive is the sharp deterioration of the Eastern European economies. AIB , CRH and Kingspan would have significant Eastern European exposure which will add reason to worry about these stocks.

In the financials the list o resignations continues with the departure of Michael Walsh, Chairman of Irish Nationwide Building Society. No official explanation of his departure has been provided. It was reported last evening that the Government was unaware of his resignation, hence it would seem unlikely that he would be moving to become involved with any of the other Irish banks. The Finance Minister did state yesterday that a new CEO will be appointed to Bank of Ireland within three weeks time. The CEO role remains open at Anglo.

There was little corporate news , little real activity but another down day with AIB down -4.5% at 63c , Bank of Ireland down -2% , Irish Life which fell precipitously to 1.05 at one stage rallied to close up on the day at 1.275. Minister Lenihan stated in the Dail that Irish Life was well capitalised and had minimal capital requirements. A new management team is what it needs. Maybe the departure of almost all those responsible for bringing Irish Permanent and Irish Life together may create the momentum to crystalise the value of the Life assurance business if a solution or a taker for the Permanent TSB book can be found.

Grafton continued to slide , down another 5.7% today down 27% from the high of the last week , Kingspan rallied +3% , still down -25% on the week. United Drug carried on the de-rating of yesterday and fell a further -10%. We have adjusted our United Drugs EPS forecasts for the current year (to September 2009) by 16% from 27.4 cent to 22.96 cent (a 10.7% decline yoy) and for FY 2010 to 24.41 cent (reduced by 16% from 28.9 cent). We have a HOLD recommendation on United Drug.

The other notable feature of today was the weakness in the primary agricultural stocks such as Origin -9% (albeit on tiny volume ) and Glanbia which fell -10% and Property vehicle Blackrock fell to a new low of 2.7c , the market totally ignoring the companies protestations about the NAV being worth 25c.

Aer Lingus fell another 4% to 95c , Ryanair looks cracking value here at 3.15 a week after our meeting with Michael O’Leary . Independent News and Media fell yet again , this time down -13% to 16.1

Look on the bright side , Another day down…


Have a good evening,

Liam Boggan
Merrion Stockbrokers

www.merrion-capital.com

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