Good Afternoon ,
The start of a new week and the markets are in profit taking mode.
I am still quite bullish but you have to be careful with entry points as the intraday movements are still very Large.
The ISEQ index gave up 3% today driven by CRH which is testing below the 18 .00 level this afternoon. I suspect that the stock will find decent support near these levels.
Kingspan AGM is on Thursday , this stock has had one hell of a run , looks overbought in the short term and it is hard to believe that the statement wont trigger a bout of profit taking here which may allow some of the shorts to cover their positions and allow more long funds to begin to build positions.
Grafton fell -5% today as Travis Perkins IMS statement said that its performance in the first four months of the year has been ‘ahead of the Board’s expectations’ in markets that have continued to slow down. Revenue in the period fell by 13.6% in total and by 14.4% on a like-for-like (LFL) basis. Merchanting revenue fell by 19.0% LFL and by 18.4% in total, evenly balanced between general and specialist merchanting. The LFL decline over March & April (-18.4%) was similar to January & February. (This LFL performance would not be inconsistent with Grafton’s ytd LFL sales in UK merchanting). Retail sales in the first 18 weeks declined by 1.9% with LFL down by 3.6% . Travis launched a 7 for 10 rights issue at 365p (a discount of 38.5% to TERP and of 51.6% to Friday’s closing price) to raise £300m. The proceeds will be used to reduce net debt.
The Banks which had been very strong last week also slipped with Bank of Ireland which looked well over cooked in the short term giving back most performance today down -10.6% , AIB which fell -4% today looks more interesting to me at this point based on the research that my colleague Sebastian Orsi published ahead of the announcement that AIB was going to seek to raise 1.5bn of fresh capital. Based on the Ministers statement supporting AIB decision to raise fresh capital and that Bank of Ireland needs none , it would appear that Sebastian was on the mark when he modelled a 20% haircut for assets that will go into NAMA as this is broadly the haircut which solves the equation for the capital question. My colleague when he modelled the numbers also said that the Tangible Book value post writeoffs of Bank of Ireland would be approximately 60c and in the case of AIB Eur2.02. On this analysis, AIB is definitely more attractive than Bank of Ireland though there is a risk here as AIB still have to do the fundraising. (See Merrion note dated April 16th from Sebastian Orsi)
Irish Life was up 1.4% today despite the pullback in the other Banks.
In the foods Greencore which had rebounded sharply also traded down -6.7% today and Glanbia fell -6%
Smurfit continued to rally and today rose +5% , helped by speculation that the company may be in talks with their banks re their covenants. On the conference call on Friday afternoon management said that the Visibility in markets is poor, conditions continue to be very challenging and the outlook is uncertain. On demand, management noted that the rates of decline eased as the quarter progressed, and there had been some indications that demand was starting to stabilise at a low level – however, management was careful not to definitively call a bottom and was clear that it was too early to talk about greenshoots. It said there was no material signs of re-stocking activity by its customers.
C&C have numbers tomorrow , We expect FY09 results to be in line with previous guidance. EPS of 21.4c, a decline of 33.5%, reflects sharp volume declines in the cider business in ROI and UK as well as ongoing margin pressure. The company’s outlook for FY10 will be the key focus; we expect no change in the previous EBIT guidance of €77-82m. Within the results, we will focus on (i) recent trading patterns in ROI, which we expect to remain difficult in FY10 (ii) the progress of pear in both Ireland and GB since the March launch (iii) the roll-out of draught in the UK market and the conversion of distribution into sales (iv) ongoing destocking in the spirits & liqueurs division (v) further cost takeout initiatives in addition to the plan already announced in March and (vi) update on C&C’s plans for A&P spend beyond the 10% reduction announced for FY10 in March. Of key interest will be the update the company provides to its FY10 outlook. In March, C&C stated that it was targeting operating profit in the range of €77-82m, assuming stabilised cider volumes. We currently forecast €74m for FY10. Our forecast includes an 11% decline in ROI volumes in FY10 and 4.7% decline for Magners in GB. We also expect a revenue decline in the spirits division of 2% due to destocking as reported by industry peers. With the crucial summer trading months still to come through and the pear launch at an early stage, we expect C&C management to re-iterate its previous guidance. The success of pear and the roll-out of draught are crucial to management’s goal of stabilising volumes in GB this fiscal year.
Have a good evening ,
Liam
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