Good Afternoon ,,
Round two of the week , Markets all down , Ireland down -2% as CRH cracks under disappointment re the scope and scale of the Obama stimulus plan and also growing talk in the market about whether or not CRH are likely to have an equity issue. Obviously only the company know whether they will go for an issue or not. IF CRH do go to the market it is not clear how a fund raising will be received.
CRH is in a relatively comfortable position in terms of its debt covenants. Our forecasts currently for 2010 EBITDA interest cover for CRH are 8.8x compared to managements admitted comfort level of 6x and the actual covenant level of 4.5x. What is clear to us is that unless the environment deteriorates very rapidly , that CRH could debt finance nearly 4bn of acquisitions before getting tight in terms of their covenants. So if they go to the market the market will want a decent explanation. If it is just defensive the market will worry that if CRH are topping up cash that things will get much worse. The market may worry that CRH might go on an acquisition splurge at the wrong time if it had resources burning a hole in its pocket. Anyway suffice it to say that the market is now spooked about CRH and will be waiting for the results announcement on March 3 to get a clear steer re a funding or not. Meanwhile it is likely to be volatile.
Speaking of volatile the irish financials have had an extra ordinary day with AIB and Bank f Ireland getting close to the levels of the lowest priced Government warrants. Have to say that this did bring some punters out of hiding and the stocks rallied with AIB ultimately closing the day up almost 20% having been down -18% at 42c.
And back to Irish life where today Fitch Ratings placed Irish Life & Permanent's (ILP) Individual Rating of 'B/C' on Rating Watch Negative (RWN). At the same time, the agency has affirmed ILP's Support Rating at '2'. The rating action reflects Fitch's concerns over the placing by ILP of a collateralised deposit with Anglo Irish Bank Corporation in September 2008. The agency notes that the Group Chief Executive, Group Finance Director and Head of Group Treasury of ILP have resigned over the incident. In the context of a sharp deterioration in economic growth in Ireland and dislocated financial markets, Fitch is concerned by the loss of these senior members of ILP's management and the time it may take to replace them. Fitch is also concerned about possible breaches in procedures and any rating action by Fitch may be influenced by how the regulators treat the incident. It may be that the new management will review the strategy of ILP and Fitch will closely assess any changes that may be implemented. The agency will also examine the possible impact on the bank of the financial market's reaction to the incident. Fitch aims to resolve the RWN when it has more complete information. Irish Life traded down to a low of 1.22 before rallying towards the close to finish at 1.275 down a mere -11% . Truly a nightmare for the poor investors who have stayed loyal to this one.
Elsewhere the poor global equity market environment continued to weigh as usual on volumes and prices.
Kingspan fell -4.5% to 2.03 and its UK distribution per SIG also fell -7% , Grafton which looked like the real value play last week now available on special offer at 1.39 . mcInerney which is slowly disappearing dealt at 9c -10%
United Drug failed to dispense the happy pills and their trading statement offered no comfort to investors with the management team working towards flat profits o a constant currency basis which led to sharp reductions in earnings estimates. United Drug closed down 20% at 1.93 today.
Smurfit rallied towards the close to the 1.45 level having flirted into the 1.30’s at one stage.
Independent News and Media fell -9% to 18.3c
DCC fell -2% , Paddy Power -2.8% and even Ryanair is now trading at 3.09 with all the excitement of last week firmly eradicated.
Has to be time for the mid week rally ? Maybe not with Wall street down -3% , the UK down -2.5% and Europe -2.4% .
So lets hope that you have an interesting evening ( hardly going to be positive surprises from the US tonight ), would be nice to have something to look forward to , think a quiet one for me. Going Swimming !
Have a good evening
Liam
Liam Boggan
Merrion Stockbrokers
www.merrion-capital.com
Disclaimer www.merrion-capital.com/disclaimer.html
Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.
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