Liams Last Post : Hiatus over... and down she goes dragged by sterling and the fed...

 

Good Afternoon ,

 

Well , I should have known really when for tow days the market see sawed without achieving any ground that this might trigger a pull back. As I learned many years ago in the fruit market , when it is not going up anymore , it usually has only one way to go… the question here is how sharp the pullback is. Yesterday we saw the first sell off to the close in Wall street in quite some time after the Fed commentary that accompanied their decision to hold rates unchanged.  European markets reacted to this nervously today and the rally from the low mid morning gave way to a sharp pullback in the Afternoon.

 

The Banks in Ireland were a bit all over the place today Down and up and down again …Bank of Ireland which was presenting at a conference came in for some late selling to drive it to a closing retreat for the day of -6% . Irish Life also fell -5.8% , it too presented at the same conference with a well know other Dublin broker….

 

AIB broke fresh ground since the financial crisis began and successfully closed a €1 billion 3 year Senior Unsecured Unguaranteed Bond Issue. Significantly, this was the first Senior Unsecured Unguaranteed Bond Issue from any Irish bank since the Government Guarantee was introduced in September 2008. The deal was priced at a spread over mid-swaps of 250 basis points with in excess of 230 international investors reflecting a well diversified geographic profile and was oversubscribed by 2.9 times. According to the statement from AIB themselves. In our view this is pretty significant as its senior debt and not covered bonds so more expensive than the recent issue from Bank of Ireland but doesn't eat into liquidity pool.

 

Selling pressure continues n CRH and it has come back to the Eur19 level. Grafton dealt in decent volume but was stable at the 3.60 level. This one has already pulled back by -16% in the last week so should be resilient in weak markets and should bounce if the markets recover.

 

Weakness in Sterling relative to the Euro was responsible for some of the weakness today. Kingspan which has significant sterling exposure fell -3.1% today , it as been a stellar performer

 

Ryanair held its AGM today, the CEO reiterated previous profit guidance that FY10 net income (excl. exceptional items) would be at the lower end of the €200-300m range (we forecast €248m). In terms of specific factors within the business there were two slight changes relative to previous comments. The CEO stated that FY10 yields would fall by approximately 20%. This compares with previous guidance of at or even slightly worse than minus 20% (we have -21% in our model). However, passenger volume guidance was slightly trimmed to 66m from 67m, due to likely capacity adjustments this winter. Given that 1m incremental winter passengers would be at relatively weak yields that is likely to account for the even slightly worse than -20% not being mentioned in the yield guidance this time. Looking at both together, our conclusion is that demand remains weak, with much promotional activity necessary – as a result winter capacity is being trimmed somewhat from earlier plans, with yields still likely to fall by c.20%.

 On our forecasts, we remain comfortable with our forecasts (FY10: €248m net income, 16.7c EPS), with slightly better yields offset by slightly lower volumes compared to the existing assumptions in our model. However, we note that the consensus EPS estimate of 23.3c (c.€345m) is well above both our forecasts and company guidance. We see no basis to expect that yield trends over the rest of the year will be materially better than guided by the company.

 

The Ryanair price reacted very positively initially but did drift off as the day wore on to close -3.9% down.

 

Paddy Power also gave up -3.4% today and is back to the 21.00 level , still just out of overbought territory but getting back to buying territory again. Would like to ben picking this one up at or just below eur20.00

 

At 5pm ., Wall street which tried to rally then slumped is hanging around the 9700 level down 0.5%  , no doubt the close here will set the tone to end the week.

 

Liam

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

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