Good Afternoon
The ICON numbers released today were released into a market which had taken fright after a poor result release from their peer PPD. We spoke to the CFO before and during the conference call. The highlights are as follows : The Lilly deal was >$50m of the new business wins. Taking this away gives an underlying book to bill of c.1.0x. He suggested that it is wrong to take it away as they have a deal of that size every quarter . SG&A cost savings – these were lease reductions in the US where they had adopted duplicate offices due to past acquisitions; 40 FTE reductions in Manchester Phase I as part of move to new facility; some reduction in management layers in the US (small FTE reductions). There is a little bit more savings they will get out of these in Q3 and Q4 but suggested that this was the bulk of the available efficiencies they were looking at at the moment. Underlying operating margin was 12.6% in the quarter – additional 0.7% benefit from FX. The underlying level should be sustainable going forward (and will improve as underperforming units improve). RFP flow (a sign of future business wins) had improved from c.$1bn in Q4 and Q1 to $1.2bn in Q2 – this is a good indicator that future new business wins will be higher than the current levels. Q3 business conversion has started well.
Having had this conversion we are more positive on the momentum for new business. The Tone was confident and relaxed. After the conference call we thought that the Icon numbers were a bit below expectations in terms of new business wins but momentum in the right direction The RFP flow increasing , They are seeing larger studies coming into the market an they are winning a higher share of the RFP. Client concentration has come down significantly since last year. Last year the top 25 clients were 68% , and are now 59% of the total. Their client concentration stats are better than PPD , as in less concentrated and maybe why they are outperforming PPD .The revenue from the lily deals will come in earlier than normal trials as they are already in progress and will come in in different stages. The essence of the Lily deal is 100 different trials which are moving to ICON. The comments re the first few weeks of Q3 were encouraging, so upgrades in prospect quarter on Quarter. We really like this one , would buy on weakness , room to run ….
Other news this afternoon in Dublin was the announcement by Anglo of a subordinated Debt buyback. Anglo has announced a tier I/2 buyback. Looks like they are offering cash at 27%, 37% or 55% of par It looks like the buyback gain for Anglo would be about €2.1B if fully subscribed. There are 5 tranches of tier I covered and 2 tranches of tier II.
Ryanair announced yesterday that it is to reduce the number of aircraft it operates from Stansted airport this winter from 40 to 24, equating to a reduction of c.30% of flights per week. This is a greater decrease than last year’s winter reduction when it reduced the number of aircraft from 36 aircraft to 28 at Stansted, or 14% of flights. Ryanair noted that it will be redeploying the 16 aircraft to other European bases where tourist taxes and passenger fees have either been reduced or scrapped.
The company highlighted that the main reasons for the capacity reduction at Stansted are that it is one of its two most expensive airports (the other being Dublin) and the UK Government’s planned increase in APD from £10 to £11 per passenger effective from November. There was also speculation in the press this morning that the company will announce cuts to its winter capacity in Dublin airport next Monday when it releases its Q1 results. We re-ioterate the Buy in Ryanair . I think this could be an interesting trade into the results on the 27th
At the close of play today , it was a day where the market truly moved in a range opening higher , falling lower , rallying and ultimately closing at about yesterdays levels… Wall street is flat and Europe was higher after rallying during the afternoon.. The Ftse in London rose just under 0.28% U.S. Federal Reserve Chairman Ben Bernanke, reiterated today that financial markets remain stressed and that an interest rate is likely to stay at a record low near zero for some time . He said "In light of the substantial economic slack and limited inflation pressures, monetary policy remains focused on fostering economic recovery," The comments were from his semi annual congressional testimony on monetary policy. He added that Fed policy officials believe "that a highly accommodative stance of monetary policy will be appropriate for an extended period
Have a good afternoon.
Liam
www.merrion-capital.com
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