Good Afternoon ,
Can only Hope that March is better than it looks now....
Whatever happened over the weekend the bright spot was definitely the match result even if it was scrappy , after that little to say but the world has gone pear shaped again…A bit of respite and calm and re-assurance would be good so that we can build again. Seems like everyone losing their nerve and the real panic is starting now.
Busy day for corporate results in Ireland with results from AIB , Paddy Power and Kingspan.
There were no major surprises in any case , everyone has known about AIB and the key highlights from my point of view is that they now have in management’s stress scenario, which admittedly is looking more the base case that impaired loans continue to increase to €17.5B in 2011 (13.5% of the current loan book). Loan loss provisions in the stress scenario are increased by €1B p.a. in 2009 and 2010. Our concerns here are that the implied incremental loss content within incremental impaired loans seems low (€2B of incremental losses on incremental impaired loans of €8B). Furthermore, in the stress scenario, AIB’s core tier I capital ratio (their assumptions) falls to 5.9% including the government prefs (€3.5B) which is only c. €2.7B above the regulatory minimum of 4%
In terms of read through for the other Irish banks, AIB’s increase in Irish mortgage arrears (30 day + at 148 bps, from 36 bps end 2007 and 63 bps interim 2008), is a concern for IL&P. AIB’s 2008 provisions include 16 bps for Irish residential mortgages and they are indicating 43 to 54 bps for 2009 in their base case scenario. Our 2009 forecasts for IL&P include Irish mortgage loan loss provisions at 15 bps. Going to 50 bps reduces forecast pbt by c. €100m and would reduce our capital forecast by 35 bps (bank equity tier I forecast goes to c. 5.4% end 2009).
As For Kingspan the top line environment will be very difficult in 2009, and management were under no illusions here. Sales trends deteriorated in H2 of 2009 with acceleration in the rate of sales decline. The yoy decline in order books is dramatic – the current order book in Insulated Panels in UK, Ireland & Benelux is down 28% yoy, and is down 33% in CEE, while in Access Floors it is down 19% in North America and down by 6% in Europe. Order levels continued to decline materially in the first two months of the year, and lead indicators are weak for the units. Visibility is poor and there no indication of when markets will start to stabilise. Based on order trends, organic group sales are likely to be down in the order of 25-28% (our estimate) in 2009. We expect to be reducing our EPS forecast for 2009 to c.15-18c from 27c. Our EBIT forecast reduces to €50-52m (from €77m previously expected and €157m in 2008) due to an increase in the expected decline in sales. In terms of yoy movement, the major factors are the operational gearing impact of the expected 2009 sales decline and the impact on margins from price pressure and historic cost raw material stocks, partly offset by cost savings. Net interest costs (€16m) and tax charges are likely to be to be more favourable than previously assumed. This implies 2009 EBITDA / interest cover of c.6x and net debt / EBITDA of no greater than 2.5x. Assuming stable sales in 2010, the incremental impact of cost savings and lower interest charges suggests a yoy improvement in EPS to the 20-25c range.
Following Paddy Power’s results and management presentation this morning we have made small revisions to our FY09 forecasts. We are now forecasting FY09 EBIT of €49.4m and adjusted EPS of 94.8c which compare to our previous expectations of €46.9m and 91.9c respectively. Our forecasts are now based on a £/€ rate of 0.90 compared to 0.94 previously. In addition, we make modest changes to our underlying growth assumptions across the group’s business. In the group’s online business, we are now forecasting FY09 operating profit of €35.3m, compared to €32.1m previously. In terms of the sportsbook, we still believe average amounts staked are likely to come under pressure in the current year and we leave our forecast for an underlying decline in average stakes unchanged at -15%. In addition, incorporating 0.90 £/€ implies a 22% reported decline in average stakes in online sportsbetting. On bet volumes, with the strong performance noted during the first two months of 2009, along with strong active user growth, we have increased our bet volume growth forecast to 20% for FY09 (15% previously). We have left our FY09 gaming gross win forecasts unchanged at 4% on a reported basis. Irish retail produced operating profit of €28.3m in FY08, which was broadly in line with expectations. The weaker Irish consumer environment, as expected, started to impact the group in H208 and we believe this will continue into 2009. The group stated that in the year to date, retail amounts staked are down 5% in constant currency, which we believe implies a c10% fall in LFL in Irish retail and we believe this level of decline is likely to continue throughout 2009. Following our changes Paddy Power is trading on an FY09 PE rating of 12.0x, which we do not believe is overly compelling given the risks that still remain with its divisions, particularly those that are Irish consumer facing. The strong balance sheet (FY09 year end cash of €90m), and dividend yield of 4.7% may offer support at current levels.
Tomorrow we have CRH results and C&C trading update to look forward to.
Markets are in a terrible state with The ISEQ index opening up the batting for March with a -4.5% decline , Europe fell -4.7% and the FTSE -5.3% with the Dow at 5pm at 6835 -3.2% ,
AIB closed up +13% today after its recent very weak few days. Elan got battered down -10% today , Icon -7.2% , Glanbia -8% , Greencore -5.5% Bank of Ireland fell -15% , irieh Life was +17% in Dublin at 74c., CRH fell -4% and Kingspan fell -4.2% as did kerry -4.3% and amd Smurfit -7.4%
INM fell -7% and McInerney fell -25% .
Why today ? Maybe Buffet saying the US economy is a shambles ? maybe HSBC after it said it plans to raise £12.5bn in a rights issue… Any way no good news… Welcome to March , the bears are already here.
Have a good evening.
Liam
___________________________________________
Liam Boggan
Merrion Stockbrokers
www.merrion-capital.com
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