Liams Last Post: Aer Lingus finally gets on with it...Tullow and United drug interesting...

Good Afternoon ,

 

Aer Lingus was the big story in Ireland today. The much awaited cost cutting plan being rolled out. No major surprises , it was broadly within the scope of  what was expected. Aer Lingus plans to reduce annualised non-fuel costs by €97m, with €74m of the savings coming from employee costs and €23m from non-staff costs, with 80% of the savings accruing in 2010 and the full €97m p.a. from 2011. The target cost savings is within the €90-100m range we were hoping would be announced (the €130m savings mooted in the media had appeared unrealistic to us particularly in the context of a total staff cost base of c.€300m). The cost savings compares to an expected operating of €139m in 2009 and €102m in 2011. To return the company to profit will involve phase two of the restructuring plan which will be more focused on new revenue generation (the development of a UK based AOC strikes us a very interesting developmentThe market is interested in the plan being executed now and the market is all set for the strike. One of the interesting points from the announcement was the quote from Chairman Colm Barrington who said that the board and management has completed a thorough review of all elements of the business and operating model and has unanimously agreed and proposed this plan to transform the business.  A unanimous agreement with all the various political and ESOT and the senior Union person David Begg suggests the likelihood of successful implementation of the plan is quite high.

The share price reacted over favourably initially but traded back to close just a couple of percentage points ahead of yesterday. Yesterday the stock was however up over 12%.  

The Banks traded in a narrow range surrendering initial gains with AIB closing -2% and BOI down -3.2%

The weakness of sterling is becoming a big hindrance for Irish stocks and  the continued devaluation of sterling vs the Euro continues to pu pressure on the already weak economy here.

United Drug United Drug issued a full year trading update this morning (year end 30 September). Guidance for profits before exceptional costs and on a constant currency basis for the full year was raised slightly from "at least in line with the prior year" (Q3 trading update) to "ahead of profits reported in the prior year" although the recent weakness in sterling may offset this benefit on a reported basis. This marks an incremental improvement in trading. Divisionally, the themes outlined in the Q3 trading update have continued into Q4. In Healthcare Supply Chain weakness in Medical & Scientific capital spend and the consumer products business has led to a decline in profitability for that division. On a positive note, the company continues to gain market share in wholesale in both the ROI and NI, and in pre-wholesale in both the ROI and the UK. The Specials Lab and Craig & Haywood have both performed strongly. In the Contract Sales division, the company reported continued strong growth with the company reporting "a number of new business wins during the year" in the core sales outsourcing business as well as "a very good year" for the ancillary events management businesses, which won "significant new business particularly in the US". In Packaging, the recovery in the US in Q3, following a poor start to the year due to order delays, has continued into Q4, with the performance in H2 described as "much stronger … more in line with its longer term potential." In the UK, there was no news on potential renewed business volumes from the major client that reduced volumes earlier in the year. Overall the company has positive momentum in many areas of the business moving into H1 2010 which should be an easy comparator for parts of the business that underperformed in H1 2009 (particularly Packaging). We have a Buy recommendation

The Irish Central Bank released its Q4 2009 economic outlook yesterday with modest revisions.  For 2009 GDP is now anticipated to decline 7.8% (was -8.3%) and GNP is expected to decline 10.6% (was 9.4%).  For 2010 GDP is anticipated to contract a further 2.3% (was -2.7%) and GNP a further 3.1% (was -3.5%).  Importantly, on a quarterly sequential basis, much of the anticipated decline in economic activity has already occurred with modest positive growth anticipated for H2 2010.  The employment outlook has been slightly positively revised (now 17,000/0.9% higher in both 2009 and 2010) while unemployment is now forecast to average 12.0% in 2009 (was 12.8%) and 14.0% in 2010 (was 15%). 

 

Tullow Oil partner in the Jubilee development offshore Ghana, has moved to exclusive discussion with Exxon in its sale process  It should not come as a surprise that major E&P industry players are interested in Kosmos given the scale of the Jubilee discovery and the new regional exploration play that it has opened, although the Exxon name hadn't been mentioned in press reports previously.  Valuation details are rumoured to be in the range of $4bn.  As we've indicated previously, a sale of Kosmos would give greater confidence around the valuation of the asset base.  The interest of Exxon would confirm the scale of the discovery and the regional exploration potential. 

 

The markets today were all range bound , European markets down about -0.3% and the US down -.37% at 5.15pm.

 

Sunny evening in Dublin…after initial cold winds and touch of winter…

 

Have a good evening

 

Liam

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

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