Good Afternoon ,
A see saw day , markets closed higher after an unsure day , no doubt the underlying momentum is still positive , The market is still buying the cyclicals and certainly in Ireland the food stocks which are Irelands defensives are lagging.
Independent News and media announced that they had succeeded in a standstill agreement , strikes me that the bond holders may not have really wanted to pull the trigger on this but that the company has not got the money to repay so we are at a real standstill. The stock fell -11% today as the market began to realise that a happy ending for the equity holders may not be around the corner and that the O’Reilly family have lost Waterford Wedgwood already this year.
Further supportive news for CRH US operations came this afternoon when Lowes the US DIY / Lightside building materials company released nubers at the top end of the trading range. Despite reporting Comparable store sales for the first quarter declining 6.6 percent the company made some positive noises about a stabilisation…The CEO said in the statement that “In recent weeks we have seen consumer confidence improve, housing turnover show signs of a bottom in certain markets, and home prices slow their decline," "These are all positive signs for the stabilization and ultimate recovery of home improvement industry sales, but since many of these variables remain at or near historic lows, we will continue to plan conservatively and manage expenses appropriately. Lowe's remains focused on positioning the company for the future while maximizing opportunities presented today."
This was enough to turn CRH around today and it closed up +0.11% after being down a couple of percent initially.
Tomorrow we have both Bank of Ireland and DCC with results.
On Bank of Ireland , our forecast for F2009 adjusted EPS is 13.2c, compared to 150.3c in F2008. The key driver of the reduction in earnings is €1.4B of loan loss provisions, as well as €75m of losses on available-for-sale securities. BoI is expected to take €300m of goodwill impairment charges on its US investment management assets. Additionally, restructuring charges of c. €90m are to be included in F2009. The Government guarantee charge is expected to be c. €58m in H2 F2009. The Government capital injection of €3.5B of preferred shares adds 3% to the core tier I capital ratio. On credit quality, our cumulative loan loss expectation of c. €6B for F2009-F2011 is in line with management’s stress case scenario. Our view remains that it is premature to consider BoI investable until greater certainty emerges about potential losses to be crystallised on transfer of assets to NAMA. We estimate that an average discount of 17% (20% on development loans and 10% on investment exposures) would result in a pro forma tangible book value per share (including dilution from government warrants) of 65c. We have a HOLD rating on BoI. (Analyst: Sebastian Orsi)
Following IL&P’s interim management statement and analyst conference call on Friday our overall view on IL&P is unchanged. The capital position is tighter than historically but capital generation in the life business is expected to offset losses in the bank franchise. The potential to release capital through a VIF securitisation is an additional buffer that management retains, although this carries execution risk. In the near term, we expect funding conditions for the bank to be the key driver of the share price given the high relative reliance on wholesale funding. Should international credit markets continue to ease open, IL&P will benefit significantly. With the stock trading on 0.27X 2009F embedded value per share (now €9.61 from €10.08 reflecting forecast revisions), significant risks are discounted in the share price. We are maintaining our BUY rating on IL&P.
On DCC : We are forecasting operating profit of €173.8m (+4% yoy) and adjusted EPS of 164.8c (-0.2% yoy), in line management guidance provided in February’s IMS. Focus will be on outlook for the energy and IT divisions for the coming year, results of the Strategic Review and commentary on the company’s appetite for acquisitions. BUY
DCC is due to release preliminary results for the year to March 2009 on Tomorrow. We are forecasting full year operating profits of €173.8m, up 4% yoy, which is a robust performance considering the c.16% depreciation in the sterling translation rate the group has faced this year (over 70% of operating profits are GBP). In the Energy division, we are forecasting operating profit of €93.6m, up 26% yoy, due to synergy benefits from acquisitions and the cold winter in Britain and Ireland helping to offset the impact of weaker sterling. In the IT divison, we are forecasting operating profit of €38.6m, down 4% yoy, with the first full-year contribution of Banque Magnetique (acq. Nov. 2007) along with growth from consoles/games partially offsetting weaker demand across the rest of the division and sterling weakness. In Healthcare, we are forecasting operating profit of €19.1m (-19% yoy) due to reduced healthcare spending and weaker GBP. In Food & Beverage, we are forecasting operating profit of €12.2m, -20% yoy, while in Environmental, we are forecasting operating profit of €10.3m (-27% yoy) – full segmental analysis provided in Table 3. The company noted in its IMS in February that the Energy and IT divisions performed well in constant currency terms during the third quarter, while the Healthcare and Environmental performances were behind expectations, with Food and Beverage profits declining.
With over 70% of group operating profits denominated in sterling, the company remains vulnerable to further GBP depreciation. However, the defensive nature of the businesses that DCC operates, as well as its 9.0x FY’10 EPS valuation, continues to make it an attractive investment in the current climate. BUY.
Lets see what tomorrow brings
Have a good evening
Liam
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