Good Afternoon
Well the Dow was bound to have an up day , but what went up inevitably only comes down…. The mixture of Obama and Bernanke trying to inject some confidence particularly with Bernanke trying to assuage fears about nationalisations of the US banks did help support the market. Barack Obama, in his first address to Congress as President, said he would act with the “full force of the federal government” to mend the US economy, while Federal Reserve Chairman Ben Bernanke reassured said no big US banks are likely to be nationalised outright in the near future.
Almost predictably the rally in Europe fizzled out just before the opening of trading in the USA. There are interesting patterns for day traders to look at but the trend is unbroken on the downside as Investors realised that President Obama speech was long on rhetoric and short on practicalities.
The news in the USA that spooked the market thsi afternon was that Mortgage applications fell -15% and existing Home sales in January fell -5.3% compard to expectations of a rise in sales of 1.1% and compared to the prior month where existing home sales were up 6.5%.
Also SAKS the upmarket retailer reported a fiscal fourth-quarter loss on slumping sales and margins, as the retailer resorted to steep markdowns. Saks saw continued weakness across all its regions. Sales at its flagship New York City store, which began to fall off in in the third quarter, continued to lag in the latest period. Revenue fell 15% to $835.5 million, with sales at stores open at least a year falling by the same amount. Gross margin plunged to 20.8% from 37.1% on markdowns. There had been expectations that the high end luxury stores would rove more reislient but that is obviously not the case either.
In Ireland the market rallied like all the European markets , the financials continued to be uder pressure today and certainly not heled bythe large picture of Minister Brian Lenihan in the business section of the Irishs times which reported on the Minister statement made on RTE radio where he acknowledged that Investors were moving deposits from the Irish Banks but apparently the amonts had not reached a critical level. Apparently the minister was responding to the claims made by Senator Shane Ross who had said that ivestors had taken Billions out. It is not re-assuring that the Minister is not reported as offering any comfort to depositors. Minister Lenihan is reported as having said ‘What’s crucial for Ireland is that we retain international confidence to attract these funds,” and “It’s a battle for financial survival. We have to keep working at it.”. Hardly Inspiring Stuff and only highlights a lack of appreciation of the need for the Government to take leadership role and to try and re-assure depositors.
The EU commission has also put forward today proposal for a common approach to valuing toxic bank assets. The guidelines leave up to governments how they choose to deal with such assets - for example by setting up "bad banks" or using and asset insurance schemes - but are aimed at ensuring that such schemes do not result in unfair competition.
In terms of the Irish market today , Irish Life continued to struggle hitting a low of 61c before closing at 65c don 5c from yesterday. AIB closed down -3.9% at 50c and bank of Ireland closed effectively flat at 28c.
CRH beneftted from the rally in the US materials stocks last night but drifted through the afternoon to close +2.3% at 16.00 having hit a high today of 16.76 and a low of 15.80 , so volatility aplenty here. Grafton rose +5% to 1.32 despite Wolseley announcing that it is going to close 4 stores in Ireland with 180 jobs to go. Kingspan tried to rally but is stuck at 2.10 , the news of it being selected to exit the Eurostoxx 600 index is not good news for Kingspan.
APN News and Media, in which Independent has a 39.1% stake released its FY08 results this morning with Net Profit after tax (pre exceptionals) of A$140.1m (-17% yoy) and EBITDA of A$319.5m (-11% yoy) which were broadly in line with expectations. INM share price was flat at 15c today.
Elan announced today details of the restructuring program that it had flagged at the time of its Q4 results. The effects of this restructuring are already incorporated into 2009 guidance and our forecasts (both P&L and cashflow). The company is looking to reduce operating expenses by $50m annually, predominantly in G&A and R&D but also a small reduction in COGS. This will be achieved through the mothballing of the biological manufacturing and filling activities in Athlone (Republic of Ireland); a reduction in the expense related to the company’s manufacturing ambitions in biologics (pending phase III results of AAB-001); and some reductions in R&D and general and administrative expense in the US. This will result in the targeted reduction of 230 jobs or approximately 14% of the company’s workforce. The impact on 2009 will be a projected saving of $30m in operating costs, but this will be offset by increased R&D costs related to ongoing AAB-001, ELND-005 and ACC-001 trials. The company expects a charge of $15m in severance and related charges to fall in H1 2009. Elan price fell by -0.9% today.
Aryzta comparator , the B2B Bakery group CSM reported its Q4 and FY08 results this morning, in which it stated that the combination of cost input rises and economic slowdown resulted in a 13% fall of EBITA to €133.1m. The group’s Bakery supply divisions were hit by volume declines of 5% in H208, as demand fell due to down scaling and a “one-off de-stocking effect”.
The Bakery supplies division in North America reported underlying sales growth of 14% in FY08, primarily due to price increases as volume remained stable. The division had a strong Q4 with net sales up 18.5% and EBITDA improved by 28% yoy. The group noted that its premium type products had a poor performance as customers aimed to lower their costs. The bakery supplies division in Europe had underlying sales growth of 5.7% for the year. In Q4, net sales rose 1% and EBITA fell 32%. The division came under pressure to lower selling prices in Q408, and margins suffered due to the group having a number of long term contracts for its raw materials. While many of its products serve basic food needs, sales of its luxury pastry products suffered.
The group expects the difficult market conditions to continue in 2009, however margins should benefit from lower raw material costs and both past and present cost efficiency programmes including the restructuring of its bakery activities in the UK and Belgium. CSM will also focus on changing its products to meet changing demands by investing in R&D. All in all not great trends for Aryzta which is very much exposed to the prospect of consumers trading down.
Not much by way of other major moves , with the exception of Paddy Power which was up 4.5% at 11.49.
So a half hearted rally fizzles out , At least we had a burst of enthusiasm this morning. Wall Street now -1.8%
Ash Wednesday , First day of Lent , given what we are all giving up these days , I am looking to take up something …. Any Ideas ?
Have a few…already
Prize for the most useful ideas…. Promise..
Have a good evening
Liam
___________________________________________
Liam Boggan
Merrion Stockbrokers
www.merrion-capital.com
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