Liams Last Post : Trick or Treat ? October a tough month

Good Afternoon ,

 

And so October grinds to a soggy and depressing end… The ISEQ index is down a whopping -14.16% for the month 

 

The Eurostoxx 50 index records a decline of -4.5% and London is down -1.75% whereas the Dow Jones is actually up 0.7% for the month.  

 

The list of winners and losers at the end of the Month shows the sharp fall ou of favour by the Banks with Bank of Ireland -49.9% and AIB down -41.6%. The Woes of Elan continue with a sharp rise in PML cases and some deaths and this has been reflected in a -27% performance.

 

In the less spectacular fallers , Ryanair whose results are due on Monday is down -13.5% and looks very oversold. This might benefit from some relief post results , it has given up a lot of ground lately.

 

Grafton -12%  and Norkom who we met a few weeks ago and were bullish but the story did not come across that well also fell -14% .

 

The top performers were the amongst the tiddlers and small exploration stocks. Irish Continental rallied on speculation of a resolution of the Carroll situation and a potential ultimate resolution of the future of the company which will ultimately come with a bid.

 

 Paddy Power which is one of my favourites stocks and ICON and Kerry recorded small positive  returns in the 1.5% to 3.5% range.   

 

The pull back does not look so pretty on the charts and there are stocks which have now clearly broken down out of their previously upward sloping trading ranges. The Banks sector across Europe looks particularly like a sector which to me looks like has a troubled time ahead of it to the end of the year.

 

The Wall Street relief rally of last night has been erased already. It was treated with scepticism initially this morning and then as the day wore on the negative sentiment which has been to the fore re asserted itself.

 

It is a miserable evening and I am afraid I don’t like the feel for the start of November , I hope I am wrong but I don’t see where the trigger to restart a rally will come from , Maybe I will be inspired over the weekend..

 

I have not given up hope but stocks are at or actually have broken down through critical levels so markets need to find some stability for the bottom of the trading ranges to hold and we might move up to the year end….

 

There is one thing for sure , that there are opportunities for those who need to get money into the market to do so now , this is the pullback that everyone was saying  they wanted…lets hope it gets bought…

 

Here is hoping…..Happy Halloween !!!    Feeling a tad ghoulish right now myself right now …. Trick or treat ?

 

Liam  

 

 

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Good Afternoon ,

And so October grinds to a soggy and depressing end… The ISEQ index is down a whopping -14.16% for the month

The Eurostoxx 50 index records a decline of -4.5% and London is down -1.75% whereas the Dow Jones is actually up 0.7% for the month.

The list of winners and losers at the end of the Month shows the sharp fall out of favour by the Banks with Bank of Ireland -49.9% and AIB down -41.6%. The Woes of Elan continue with a sharp rise in PML cases and some deaths and this has been reflected in a -27% performance.

In the less spectacular fallers , Ryanair whose results are due on Monday is down -13.5% and looks very oversold. This might benefit from some relief post results , it has given up a lot of ground lately.

Grafton -12% and Norkom who we met a few weeks ago and were bullish but the story did not come across that well also fell -14% .

The top performers were the amongst the tiddlers and small exploration stocks. Irish Continental rallied on speculation of a resolution of the Carroll situation and a potential ultimate resolution of the future of the company which will ultimately come with a bid.

Paddy Power which is one of my favourites stocks and ICON and Kerry recorded small positive returns in the 1.5% to 3.5% range.

The pull back does not look so pretty on the charts and there are stocks which have now clearly broken down out of their previously upward sloping trading ranges. The Banks sector across Europe looks particularly like a sector which to me looks like has a troubled time ahead of it to the end of the year.

The Wall Street relief rally of last night has been erased already. It was treated with scepticism initially this morning and then as the day wore on the negative sentiment which has been to the fore re asserted itself.

It is a miserable evening and I am afraid I don't like the feel for the start of November , I hope I am wrong but I don't see where the trigger to restart a rally will come from , Maybe I will be inspired over the weekend..I have not given up hope but stocks are at or actually have broken down through critical levels so markets need to find some stability for the bottom of the trading ranges to hold and we might then but only then move up to the year end….

There is one thing for sure , that there are opportunities for those who need to get money into the market to do so now , this is the pullback that everyone was saying they wanted…lets hope it gets bought…and for the bears , the signs of a bearish breakout has the technical bears salivating...

Happy Halloween !!! Feeling a tad ghoulish right now myself right now …. Trick or treat ?

Liam















___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com <file:///C:¥Documents%20and%20Settings¥liam%20boggan¥Application%20Data¥Microsoft¥Signatures¥www.merrion-capital.com>

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Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

Liams Last Post : Trick or Treat ? October a tough month for Irish Financials...

Good Afternoon ,

 

And so October grinds to a soggy and depressing end… The ISEQ index is down a whopping -14.16% for the month 

 

The Eurostoxx 50 index records a decline of -4.5% and London is down -1.75% whereas the Dow Jones is actually up 0.7% for the month.  

 

The list of winners and losers at the end of the Month shows the sharp fall ou of favour by the Banks with Bank of Ireland -49.9% and AIB down -41.6%. The Woes of Elan continue with a sharp rise in PML cases and some deaths and this has been reflected in a -27% performance.

 

In the less spectacular fallers , Ryanair whose results are due on Monday is down -13.5% and looks very oversold. This might benefit from some relief post results , it has given up a lot of ground lately.

 

Grafton -12%  and Norkom who we met a few weeks ago and were bullish but the story did not come across that well also fell -14% .

 

The top performers were the amongst the tiddlers and small exploration stocks. Irish Continental rallied on speculation of a resolution of the Carroll situation and a potential ultimate resolution of the future of the company which will ultimately come with a bid.

 

 Paddy Power which is one of my favourites stocks and ICON and Kerry recorded small positive  returns in the 1.5% to 3.5% range.   

 

The pull back does not look so pretty on the charts and there are stocks which have now clearly broken down out of their previously upward sloping trading ranges. The Banks sector across Europe looks particularly like a sector which to me looks like has a troubled time ahead of it to the end of the year.

 

The Wall Street relief rally of last night has been erased already. It was treated with scepticism initially this morning and then as the day wore on the negative sentiment which has been to the fore re asserted itself.

 

It is a miserable evening and I am afraid I don't like the feel for the start of November , I hope I am wrong but I don't see where the trigger to restart a rally will come from , Maybe I will be inspired over the weekend..

 

I have not given up hope but stocks are at or actually have broken down through critical levels so markets need to find some stability for the bottom of the trading ranges to hold and we might move up to the year end….

 

There is one thing for sure , that there are opportunities for those who need to get money into the market to do so now , this is the pullback that everyone was saying  they wanted…lets hope it gets bought…

 

Here is hoping…..Happy Halloween !!!    Feeling a tad ghoulish right now myself right now …. Trick or treat ?

 

Liam  

 

 

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Q3 GDP helps the rebound from yesterdays sell off.

Good Afternoon ,

 

Well hard to believe that today is a follow on from yesterday. Suddenly all is good with the world again and the market nerves are done with ? Hardly likely but the pulback to retest the support levels was dramatic in its rapidity yesterday and similarly the rebound today has been in some cases breath taking.

 

The Banks in Ireland were up sharply today after comments by the Minister for Finance that the NAMA remains on track.  Irish Life reacted positively today as well climbing +6.3% but still well off the highs of the week as the market digested the story that the EBS and Irish Nationwide are considering a merger that excludes the Permanent TSB. 

Incrementally negative news and leaves questions about what they do now by way of plan B to relieve the Funding gap ? Maybe good news though that Irish Life is not dependent on MAMA and can immediately plan and execute its own strategy free of constraints of a Government shareholding.  

 

Grafton rebounded sharply after the sell off  to close +8.8% at the 3.46 level and it was totally friendless yesterday.

 

Ryanair is struggling ahead of the results on Monday and has dipped below the Eur2.99 level , I have to say that I feel that at these levels , that the  stock is looking interesting at these levels , I had thought some months ago that there might be a chance that it might dip down but it looked unlikely until the past few days. I dont think there will be upside surprise in the numbers but I do think that the stock is increasingly being seen as having defensive qualities despite the environment. We wait and see.

 

In terms of our expectations , we anticipate that earnings will rebound strongly on lower fuel, with EPS forecast at 19.7c. Focus will be on yield performance and any update to full-year yield guidance. We expect -21% for Q2 and the full year (-27% in H2), in line with company guidance. Despite the recovery in Q2 profitability, the main focus will be on how tough the outlook is for H2 yields and on uncertainty over fuel cost trends for next year.

Our conservative yield assumption for H2 reflects the likelihood that the requirement for promotional fares to stimulate a cautious consumer to fly will be even more intense in the seasonally weaker half, where travel decisions are often more discretionary. Weaker sterling will also be a negative compared to H1, but less of a factor yoy. Consequently, we do not expect yield trends to ease in H2, and if they don't consensus estimates for the full year will be vulnerable to downward revision. With the Q2 results, we will be particularly interested in an update on (i) any change in full-year yield guidance; (ii) what the run rate in yield decline is for the seasonally busier Q2, particularly the exit rate in September; and (iii) whether management continues to expect a weaker H2.  We Reiterate HOLD recommendation on Ryanair.

Smurfit Kappa recovered half of its losses of yesterday and climber back +7% at the close.

 

The next few days are critical , the economic news today showing that the USA has emerged from technical recession with a+3.5% growth in annualised Quarterly GDP was very positively received but I get the feeling that after a tough few days , the market is happy to have a relief rally. We all knew that Q3 was stronger. We have had the Q3 earnings season in the USA, the issue is Q4 and whether there is a carry through in terms of underlying consumer demand...there is frankly little eveidence for this yet . I hope that we do see the pickup and avoid a double dip but todays rally did not recoup yesterdays lost ground in Ireland which highlights that this particular market is still very fragile. 

 

I am still not convinced that todays rally means an end to the recent volatility , there are stocks which had tested the bottom of their trading ranges , rebonded somewhat today but it they ned to form a base here to push on again.

 

Good it rallied , now need the consolidation phase to end and maybe from these new lower levels we can build a sustained rally.  

 

So the day ends in Europe with much relief all around  but the Month to date performacne stills shows a -8% decline in European IT stocks , -6% in Financials , -4.5% in Utilities with Industrials , COnsumer discretionary andMaterials all down between -2.5% and -5%. The best performing sectors are Energy +3%  and Consumer staples +2.5% 

 

Lets see if wall street holds the gains on the day , it has been a rather V shaped last two days and tomorrow , the close of the month will be critical. 

 

Have a good evening.

 

Liam

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Financials tumble again , markets range bound to down , positive sentiment evaporating..

Good Afternoon ,

 

The financials continue to be the big news with the Irish financials really strugling and very muh the laggards in the European Bank Sector indices. The Nordic Banks had a good day today with DNB up +3.76% and Nordea +2.98% , By comparison the Irish Banks down -10.2% in th case of Bank of Ireland and -11.6% in the case of AIB.  The UK banks were just a bit better than the Irish with the Spanish banks actually in marginal positive territory.  

 

We look ahead to Bank of Ireland results on November 4th. Maybve we can get something to work with but the change of sentiment has seen prices drop from the recent high of eur3.50 as recently as October 1. to the close todayo of 2.20  , a fall of -37% in one month.

 

The construction stocks also range trade with the UK stocks having given uop a lot of ground lately now trying to hold these levels as the mood grows more sombre. IN the US Vulcan is down -2.7% today as CRH at the end of the day closed at 18.30 , having traded as 18.90  until mid afternon yesterday.

 

Smurfit Kappa also surrendered some of its gains and fell -4.75% today.

 

Again , the only stocks wich look like they are making any relative progress are the food stocks wich are benefitting from the sector rotation, 

BP's Q3 results beat forecasts but the US consumer confide ce figure was weak so added to the two way pull on markets..

Markets look finely poised.  Many stocks are now back at their support levels , while some of the financials have begun to look like they are capitulating back through the support levels.

Again , we seem to be back in the 100 poits per day territory in the Dow Jones and there are some commentators noting a pick up again in the volatility of the Vix volatility index.  THis is from very low levels though but show that sentiment is fragile now.

Have a good evening

Liam

 

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post: a Good Friday ruined by Elan and US profit taking...

Good Afternoon ,

 

First pleasant Friday until wall street gave away its gains , was he first in a while… this volatility seems set to continue….If you you are an ELAN holder your afternoon was ruined with the news of the increase of PML cases to 23 from 13 has been met with a sharp negative response with the share price down by -20%.

 

The Irish banks finally began to find some support today having initially been down in excess of 3% , the afternoon saw some light relief and a bit if support coming through. At the close of business the share of AIB were +0.4% and Bank of Ireland flat on the day.

 

CRH continues to struggle and fell below the eur 19.00 level . Getting very much back in Buying territory from here.  It has bothe Defensive qualities given its underperformance and also offensive qualities given the operational leverage and balance sheet strength.

 

The UK housebuilders continue to struggle … after their strong run, more sector rotation and fears for a more difficult 2010 coming into play.

 

 Grafton which I have to say I beloeve was ambushed yesterday , being hit lower on really low volume recovered +4.7% today to trade at 4.58 at the close.

 

I got a fright when I saw that ICON plc was down -8% …. Only to find the volume a total of one share , yes one…. The ADR was up a further 0.77%

 

The food stocks in vogue for the last few days continue their relative strength.

 

 Wall Street down  -0.99% at 4.30pm , has brought about an afternoon when the hard won gains of the morning were conceded across Europe. The Stoxx50 index -0.5% , the FTSE though doggedly remaining in positive territory led by a rebound in basic materials +2.8% and helped by technology after the Microsoft numbers. Telcos's which had been one of the leading sectors of the past few days traded places with the materials for underperformance and lost -1.5%.

The underperforming sectors in the US are the Basic materials -2.3% , the oils -1.5% and industrials -1.4% which helped drag the entire index down by about -1%

 

 In terms of the Economic stats , the key numbers out of the US today was the Existig home sales numbers at 5.57m vs a survey of 5.37  , existing hoe sales month on month were up +9.4% vs expectations of +4.9%.

 

A sobering thought is the story on Bloomberg that Irish pub values have fallen by 40% … indeed

 

Have a good Bank Holiday Weekend.

 

Liam

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post: Another day ireland sinks materials and financials worst..

Good Afternoon

 

The late sell off in Wall street last night did nothing to calm nerves… As my dad once said to me about the price of tomatoes in the fruit market years ago… if it is not going up…it is going to go down.

 

And so the global equity rally fades , albeit there is still significant amounts of cash going into the market. Looking at the overall European Markets the best performing sectors over the apst mont have been the Materials sector with performance of 7% , followed by Energy +5.5% , Financials +4% with Consumer staples and consumer discretionary sectors generating about 3.5% returns .  What is clear now is that there is a degree of sector rotation going on now. On a one week view the Materials sector has lost -1% , Industrials -2% and Information technology stocks have declined by -4% , in the past 24 hours the positive sectors have been Telcos's Consumer staples , Energy ,Utilities , IT so the more defensive sectors ar very much taking over from the cyclicals.

 

Is the dash to trash over , is this just a pause before we get into the year end trading statements ?

 

There has been selling pressure on Irish Midcaps and the Financials over the past week and the market has struggled but held up well before a significant mark down today.

 

Grafton is a stock where we have been doing decent business in the 3,60's levels for the past few weeks as the stock has retraced from its recent high of 4.00 , but today without much volume the stock got knocked at the opening to a low of 3.33 , the stock has been struggling in the 3. 35 to 3.45 level for most of the day.

 

ICON which managed to persude investors at it s conference call yesterday was up sharply today again.

 

CRH which has been struggling for some time dipped below eur19.00 . I have to say I continue to like it , My view is and has been that the stock is in the sin bin post the rights issue and may remain so as indeed it has in the past until it announces a significant acquisition. The management indicated when they raised money that acquisitions may not flow until late 2009 or early 2010. We are getting close to this time horizon now. The currency moves are a drawback for this one with its exposure to the Dollar a definite drag on earnings.  There is significant operational leverage in this stock and unlike Lafarge where our Friends in Kepler cut their recommendation to reduce , CRH has not got a stretched Balance sheet , is trading on an EV to IC of just over 1x and a free cashflow yield of 9.8%.

 

Today the economic data was mixed with initial jobless claims taking a step for the worse with the number coming in at 531k vs forecasts of 515k , but the leading indicators came in a tad stronger at 1% vs 0.8% expected.

 

 Across Europe all markets ar down about 1% with Ireland down -2.2% dragged down by the building materials stock and the banks.

 

Have a good evening …

 

 

Does not feel great…

 

Liam

 

 

 

 

 

 

 

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : MArkets still making heavy weather despite good Q3 earnings reports. ICON and Elan report in Ireland , Kerry interesting

Good Afternoon ,

 

Well the Glue phenomenon continues ,  there seems to be a lot of cashflow going into the market but at the same time this period of consolidation is seeing some selling pressure on some of the irish names.

 

Sterling looked like it was the trigger over the past ten days or so but the sterling extreme weakness has reversed and yet there has been no corresponding easing of pressure on the Irish names.

 

Today , Icon issued results with Revenue of $220.4 was 2.3% light of our forecast of $225m and decreased 2.3% y/y. Excluding FX impact, net revenues were flat. There was an impressive beat on SG&A costs which were $54.4m vs. our forecast of $61.6m. SG&A as a % of revenue fell to 24.7% from 27.7% in Q308. Operating profit of $30.4m, was ahead of our $27.4m forecast and increased by 12.1% y/y. The operating margin increased to 13.8% from 12.0% in Q308. Overall diluted EPS for Q309 is 39.9c, ahead of our forecast of 36.3C and the consensus forecast of 34.3c.  Icon has increased its EPS guidance for 2009 to $1.48-1.52 (excluding a previously booked one time net charge) from $1.38-1.44 previously. Gross new business wins were $296m in the quarter (versus $325m in Q209) and net new business wins were $186m, implying a book to bill ratio of only 0.84x. Book to bill in Q209 was 1.21x. Cancellations were very high in Q3 at $110m and the company states that "higher than normal cancellations held back net new business awards". Cancellations as a % of gross new business wins was 37.2% in Q3 and 6.0% as a % of starting backlog.  The initial reaction to the numbers was for expectations that the stock would fall around `10% , however the management team in the conference call were optimistic and the stock unbelievably at 5pm is actually up +3.5% on the day in US trading.  US investors and analysts seemed to have been well prepared for the high cancellation rate.

 

Elan issued Q3 results this morning. Revenue of $287m was 5% below our expectations due to lower Tysabri revenue, Azactam supply constraining sales and EDT underperforming our expectations by 10%. Adjusted EBITDA of $23.8m was behind our expectations of $41m. Adjusted EPS loss of 11c was slightly behind our 8c expectation. Tysabri numbers, released yesterday by Biogen Idec were below our expectations driven by slower additions in ROW than expected – commercial patients totaled 45,600 compared to our expectations of 46,287. The US net addition rate increased qoq to 108 patients/week from 92. ROW weekly net additions however declined to116 from 169 in Q2. Whilst Biogen yesterday explained some of this decline on seasonal factors, and noted an increase in September (compared to the weaker summer months of July and August) there is a concern that increasing cases of PML (reportedly 17 cases now although this was not confirmed by the company) making European neurologists more cautious of the drug

 

M&T Bank, in which AIB holds a 23% interest reported Q3 EPS of $0.97 yesterday Q3 2009 EPS on a GAAP basis, after the negative impact of 8c from 1x items. The consensus was 70c and the EPS compares to 82c in Q3 2008 and 36c in Q2 2009.  On credit quality, the loan loss provisions in the quarter were $154m compared to $147m in Q2 2009, while net charge offs of $141m in the quarter compare to $138m in Q2, with the most recent quarter skewed higher by one $42m charge off.  Non performing loans increased to $1.23B at September from $1.11B at June. The net interest margin expanded in the quarter to 3.61% from 3.43% in Q2 as the cost of funding declined.  Some further widening of the NIM is possible as the deposit book continues to reprice lower.  The results conference call was very much focused on credit quality.  The stabilisation in the rate of loan losses and provisions, along with a lower rate of new non-accrual formations will likely be taken positively. The tangible common equity/tangible assets ratio has increased to 4.89% at September from 4.49% at June which will also be taken positively.  Overall, it looks as if 2010 EPS forecasts will be increasing for M&T from the c. $3.10 level toward $3.75-$4 level.  We will look to adjust our 2010 M&T earnings contribution higher by c. €10m to €70m.  This is a small positive in the context of AIB's earnings and capital outlook.  M&T's shares finished up $1.05/1.58% yesterday.  A disposal of its M&T stake at current levels would generate c. €550m of capital for AIB.  

 

We also have had a good look again at the Ryanair sensitivity to jet Fuel sensitivity for 2011. For Fiscal Year to Mar 2011 we project Ryanair will consume 2.04m tonnes of jet kerosene and our FY11 forecast of 24.2c EPS / €363m net income incorporates a fuel cost assumption of $620 / tonne. The last update indicated that 50% of the Q1 requirement (c.0.25m tonnes) is hedged at $662 / tonne. Relative to $620 this impacts FY11 earnings by €6.6m / 0.44c. For the remaining 1.78m tonnes, the sensitivity to each $10 / tonne (c.$1 / barrel of crude) is €11.1m / 0.74c. Therefore, the current spot rate of $685 compared to the $620 assumption would impact earnings by €72.4m / 4.83c (in addition to the €6.6 / 0.44c above). Effectively, if $685 / tonne persists our earnings figure for FY11 would be reduced by €79m / 5.3c, or 22% in percentage terms, all else equal. This would require another 3.8% yield growth in FY11 to offset this, on top of the 4% growth our model already assumes (or +7.8% yoy in total). The may be some slight mitigation The forecast assumes a $/€ rate of 1.43 on fuel. At least half of the FY11 $ requirements have already been hedged. A 1.49 rate from here could boost the FY11 assumed average to 1.46 from 1.43. Each 1c on $/€ rate on fuel changes earnings by €5.5m / 0.37c. (Analysts: John Mattimoe / Killian Jones)

 

Grafton had some supportive news today in the form of Home Retail Group results for the 26 weeks to August 29^th. Of indirect relevance to Grafton was the performance of Homebase (Grafton is involved in builder's merchant in the UK, not retail DIY). Homebase saw LFL sales up 3% in the period (consistent with trends flagged in earlier updates), partly aided by favourable weather. Homebase's gross margin fell by 325bps (due to promotional activity) but its operating profit rose by 66% (off a low base) reflecting strong tightening of operating costs. Management noted that both Homebase and Argos (where LFL sales fell 2%) traded ahead of expectations with tight cost control a highlight. It continues to plan cautiously for consumer demand for H2.

 

FBD – Motor insurance premiums to continue increasing according to a survey of Irish motor insurance companies by consultancy firm Deloitte, published yesterday indicated that most are planning further rate increases in 2010 after c. 15% increase over the past year.  About half of insurers expect 5% to 10% increases while 20% expect to increase premiums more the 10%.  The increase in required rates is attributed to a decline in profitability and lower levels of capital in the industry after repatriations to parent companies.  While headline rates are increasing, lower levels of cover have reduced the overall impact on gross written premium.  Motor insurance represents slightly less than half of FBD's GWP.  We expect FBD's GWP to decline 5% in 2009, followed by a 5% increase in 2010 as rate increases feed into the book.  

 

In terms of interesting defensive ideas . Kerry is worth looking at … Kerry hosted an analyst day yesterday at its new Ingredients R&D facility in Beloit, Wisconsin. The day was set up by the company to display both its Ingredients capabilities, which the Beloit centre brings together under one roof, and its new "One Kerry" strategy instigated by CEO Stan McCarthy. Strategically the company is focusing on driving leverage from the numerous acquisitions accumulated by the company over the past decade. Whilst this information is not new (the company has been talking about the "Go-to-Market" strategy for some time now), seeing the company's capabilities under one roof, and talking to an invigorated management team made the potential success of the strategy more tangible. There was anecdotal evidenceof a considerable increase in sales activity, within one of the previously tangential areas of the ingredients business, due to the cross selling and joint project/product development work being done in Beloit. This is the first tangible signs of a strategy, which has always made logical sense and being well received, actually delivering in terms of sales.

 On the cost side, the company is moving into a SAP implementation for the support units over the next few months, which will be rolled out to the supply chain areas in 2011. Looking ahead, if management continues to remain focused on maximizing cross selling and product development maximization, this new facility provides the opportunity for the company to outperform its official topline growth targets of 2-4%, particularly as the strategy is rolled out through Asia-Pacific and EMEA. Combined with margin accretion through further cost rationalization and SAP driven savings, and the potential earnings growth over the medium term could be significant.

 

So today , after an bright start , Markets nosedived on thin volume only to encounter a US market which was not for turning and so in the afternoon all European arkets rallied. It is a see saw , been going on since mid September , the results season is proving tp be more resilient than I thought though there is precious little evidence of sustainable demand recovery as yet and hence the volatility.  I think that sector rotation siwhat is going on here , a move to more defensive stocks and locking in of profits.

 

 

 

Have a good evening

 

Liam  

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Market feels like Glue...struggling and stuck...

Good Afternoon ,

 

A disappointing week in terms of performance , especially in Ireland, he Financials have had a tough time , there has been selling pressure triggered in part by the sterling weakness and despite the strong performance by wall street , there was no real follow through in to Ireland.

 

Wall street closes the week +1% , the Euro Stoxx 50 index +0.6%  , the FTSE index +0.83%  and Ireland down -2.5%

 

Friday evening as the markets drew to a close there were a number of large trades in Dublin at low and attractive prices for the buyers. The rumours were about a fund being liquidated though there was some speculation initially that this might have been related in some way to Liam Carroll though this seems to not be the case.

 

C&C Offtrade data was he highlight of the morning in Ireland ,  Magners volume and value performed in line (down 21%) on a month on month basis in this four week period, reflecting its flat pricing. Magners performance on the month outperformed Bulmers which declined 29.8% in volume terms. Magners Pear's distribution declined marginally but it increased as a % of total Magners sales to 13.4%.  The overall off trade market increased 2.6% yoy (decline of 15.3% mom) and total cider volumes increased 20.8% yoy and fell 11.5% mom. Within this, Magners volumes increased by 21.2% yoy and declined 21% mom. This follows a yoy increase of 12.9% in the previous four weeks (to 5 September) and 0.8% increase in the four weeks to 8 August.  Magners overall pricing (in sterling) fell by 11% yoy, versus a decrease of 8.1% in August. Magners pricing was essentially flat mom, the second month with no change.  Magners is now at an 8% price premium to Bulmers Original (11.7% last month). In April/May, Magners discount to Bulmers got as large as 13% which we believe was the main factor stimulating the strong volume growth recorded by Magners earlier in the year. Magners' share of the LAD was 1.08 % in the period, from 1.17% in the four weeks to Sep 5 and 1.29% in the four weeks to Aug 8. Magners' share of cider fell to 5.17 % versus 5.79% in August. This compares to Bulmers share of 4.7%. 

 

I wrote about the commodity dairy price pick up , here are the details  Cheddar Cheese prices received for US 40 pound Blocks averaged $1.37 per pound for the week ending October 10.  The price per pound increased 5.6 cents from the previous week.  The price for US 500 pound Barrels adjusted to 38 percent moisture averaged $1.39 per pound, up 4.7 cents from the previous week. Butter prices received for 25 kilogram and 68 pound boxes meeting USDA Grade AA standards averaged $1.23 per pound for the week ending October 10.  The U.S. price per pound increased 2.5 cents from the previous week. Nonfat Dry Milk prices received for bag, tote and tanker sales meeting USDA Extra Grade or USPH Grade A standards averaged $1.02 per pound for the week ending October 10.  The U.S. price per pound increased 0.5 cents from the previous week. Dry Whey prices received for bag, tote and tanker sales meeting USDA Extra Grade standards averaged 31.7 cents per pound for the week ending October 10.  The U.S. price per pound increased 1.6 cents from the previous week. The environment should be supportive for the Glanbia's and other Dairy commodity stocks.

Oil prices moved higher after US inventories data showed a larger-than-expected drop in petrol stocks last week, down 5.2m barrels, compared with a market forecast for an 800,000 barrels increase.  US crude stocks rose 400,000 barrels, below the consensus forecast for a 700,000 barrels increase.

Weakness in the US dollar helped to push gold higher too and of course Gold is being helped higher by those who fear that at some stage the liquidity driven stimulus packages may trigger inflation.

In Ireland we have Elan and Icon results to look forward toon the 21^st of October..

Elan Results are primarily geared to Tysabri so sales of this drug will drive quarterly performance. We expect weekly additions to grow and quarter end patient numbers of 46,300. We forecast adjusted EBITDA of $41.0m for the quarter and an EPS loss of 8c. PML, EDT projections and competitor MS drugs are likely to be focus of Q&A.Our Forecasts – Adjusted EBITDA $41.0m; EPS of - 8 cent We forecast Q3 revenue of $298.3m (up 12% yoy) driven predominantly by an 18% increase in Tysabri revenue. Gross margin is expected to expand slightly on the back of increased Tysabri leverage. SG&A is expected to reduce further (from 25% of sales to 22%) due to a continued focus on cost control. EBITDA (adjusted for stock comp; amortised revenue and other charges) is forecast to be $41.0m for the quarter (up from a $1.6m loss yoy and from +$19.1m in Q2 2009). Loss per share is expected to be 8c. We have made some minor adjustments in the current quarter to account for the J&J deal which closed on the 17th September, the impact will be more significant in Q4 and FY2010.

 

For Icon we are forecasting net revenue of $225m (consensus: $223m) broadly flat yoy and a 2% incremental qoq increase. Operating profit of $27.4m represents an operating margin of 12.2% (down from the 12.9% achieved in Q2 and accounting for costs associated with the Qualia acquisition in Q1 2009). There is the potential for out-performance on operating margin given the recent focus on cost control. This provides EPS of 36.3 cent (consensus: 34.3 cent – difference appears to be predominantly interest cost expectations) representing 4.9% yoy growth. New business and cancellations in peers results proved volatile in Q1 and Q2 2009, against which ICON came through relatively robustly. All the major competitors in the sector spoke of improved RFP flow at the time of Q2 reporting. The hope is that we will see this turn into improved new business wins and that the delays in signing contracts seen in the first half of the year eases. We forecast gross new business wins of $325m for the quarter (2.7% higher than the $317m in Q2) and a cancellation rate of 3% of starting backlog (c.$55m). This (depending of course on revenue performance) will provide a book-to-bill around 1.2x In line with Q1 and Q2. In our view gross new business momentum will be of more importance than the book-to-bill figure as it will be a clearer indication of whether the increasing volume of outstanding RFPs is starting to convert into backlog at a more "normal" pace than in H1.

Hope you have a good weekend ,,

Liam   

 

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Price pull backs presents opportunities...Banks , Sterling exposed stocks and Dairy commodities...

Good Afternoon ,

 

The market reaction in Europe following on from the Intel numbers and the JP Morgan numbers was muted to say the least. Stocks opened higher but pretty much immediately gave up the gains.

 

I have been getting some interesting negative reaction to my comment the other day that the crowded trade may be the long trade. Saying this does not make me any less of a bull or any less committed to the names I like.

 

What I would say is that the currency movements have been much more sudden and dramatic than any one could have dreamt and the sterling weakness has presented a big challenge to the performance of some of the Irish Stocks such as Grafton , DCC , Total Produce , C&C and Ryanair to name but a few. The market has also been dealing with the Q3 reporting season across Europe which is still showing little signs of an increase in underlying demand. The Question the market faces is how long the current level of share prices will be sustainable without a follow through in terms of  real economic growth coming through.

 

Ireland had been one of the real outperformers and It was getting harder to aggressively point to real value in the market. At this stage a few weeks into this consolidation period and there has been some significant moves and retracements. The Irish financials now look very oversold on a relative basis compared to the UK and European bank sectors.  Strange given the news of the survival of the government and the successful passage of NAMA through first reading of the legislation in the Dail , I thought might have triggered some positive reaction.   The market is well aware of the funding requirements so there maybe an element of  selling now by holders with a view to getting back in a t lower levels but Irish Life which is unlikely to have to raise capital has also been a very significant laggard compared to the European and UK Banks and also the European Life assurance sector. This one is due a catch up bounce from here.

 

The stocks have been sold off though on reasonable volume. I have mentioned that there has been some snippets in terms of company statements and increasing forecasts for the economy from the central bank which while not very strong certainly point to a shift in direction and maybe this economy could surprise on the upside. Ireland was and will continue to be a leveraged play on our largest trading partners namely the UK and the US.

 

We met Fyffes yesterday, A very relaxed meeting , Looks like they are very comfortable with their earnings for this year and I certainly got the impression that while Fuel costs might go against them that shipping is locked in for next year and there is the prospects of an ok pricing environment which should see them through next year. The Dole IPO which is due next week may also highlight the low valuation of this stock.

 

I have also noticed a big pickup in the price of cheese and dairy commodity prices in the UK and Europe and Glanbia is looking very interesting. We did write about Glanbia plans to cut prices on branded milk (2 litre packs of Avonmore, Premier, CMP and Snowcream) with the price cut being a minimum of 10% or 20c per 2 litre pack. There is currently a c.33% premium on the retail price of branded milk over private label in the ROI market, where branded share has held up very well over the past years (compare to say the UK market where branded milk consumption has declined dramatically in favour of private label consumption). The recent economic decline in ROI and weakened consumer demand is likely to accelerate the shift towards private label milk. We would assume the reduction in price will lead to reduced advertising and promotional activity by the brands in a bid to sustain margins in the division.   This may be a drag on the Glanbia share price reacting to the improved dairy commodity prices but It is another stock which looks attractive at this point.

 

Tullow has announced the drilling results of two significant wells this morning.  The Mahogany-4 well offshore Ghana (22.9% TLW) has discovered 43m of net oil pay including 15m in the main Jubilee reservoirs, 20m in a new sand and 4m each of gas and net oil pay in Mahogany Deep reservoirs.  The success in the previously known reservoirs continues to de-risk the 1.8B upside potential of the existing discovery with the move from 1.2B to 1.8B bbls adding up to 40p to our net asset value per share estimate.  The thickness of the main payzone is encouraging.  Further details are necessary (we understand it is on the limits of seismic interpretation) but the new reservoir indicated could also be significant for Tullow; it may be additive to the upside case of 1.8B bbls.  The Mahogany Deep-2 well is currently drilling with the M-5 to be drilled in Q1 2010 as well. The South Grand Lahou well offshore Cote d'Ivoire (TLW 22.4%) has found the anticipated reservoir structure to be water bearing.  The disappointing result for one of the Jubilee type prospects along the West African coast will reduce our NAV by 6p per share, but we would consider it an independent event along the string of prospects.  We have a BUY rating on Tullow

 

At 5.15pm ,  after a day when European markets traded down but not a lot , Wall street is almost flat and holding just above the 10000 level . Lets see how it closes this evening.

 

Have a good one ,

 

Liam

 

 

 

 

  

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.