Liams Last Post: better week , Greens centre stage... Merrion thinks the Banks should get on with capital raising ...

Good Afternoon ,

 

Well that was a better week, although lots of stocks are in the  same ranges… sentiment crept better with a few economic stats surprising on the upside…

 

 Today will go down on History as the Day the USA bombed the moon and the day that Barack Obama won the Nobel Peace Prize…

 

We wait for news on the future of the Government with the much anticipated Green Party convention tomorrow. As of now there is no news on a fresh agreement on a new programme for Government but given that Fianna Fail are so deeply unpopular , it is hard to niot think they would not sell their souls to stay in power. So the Greens have the best opportunity to strengthen their position relatively at this point.  

 

Tomorrow the Greens will vote on whether to ratify any deal with Fianna Fail and also the members proposal that the Greens reject the Nama proposals. The banks have traded nervously over the past few days as we approached the Green convention tomorrow.  I guess at this stage ther is likely to be a positive outcome from the Greens re NAMA and a new government which could spark a decent rally in the financials. AIB the most leveraged to NAMA , then BOI

After reflecting for the day on the C&C figures , we are leaving our numbers unchanged at EPS level for 2010. We currently forecast 20.2c per share pre acquisition and 20.7c including Tennent's. However, within the numbers. EBIT is reduced from €84.8m to €82.8m pre acquisition and from €90.2m to €88.3m including Tennent's. This is on the back of lower growth in Bulmers volumes, a larger impact from price/mix in GB, offset partially by improved costs. The 2.4% reduction in our 2010 EBIT forecast is offset at EPS level by lower interest and tax charges for the full year than previously expected.

Given the performance of the share price since the beginning of the year and the more cautious tone from management today versus recent updates, we suspect that C&C stock in the near term will lose some of its momentum. The PE valuation gap to the sector has closed and in fact, on an EV/EBITDA basis (2010 calendarised), trades at over a 15% premium. However, the investment case for C&C lies beyond FY2010 numbers. While the company has stabilised cider volumes year to date, it now needs to display a credible growth strategy for the GB market to build on this base. Medium term, the synergy benefits from the Tennent's acquisition along with possible future distribution contracts/partnerships with AB InBev are potential drivers for the stock.

Of note in a positive way for the airlines was a government sponsored report recommended the abolition of the Irish €10 air travel passenger tax, which was introduced last March. The Framework for Action report was published yesterday by the Tourism Renewal Group which was sponsored by the government. The removal of, or a reduction in, the air tax would be positive for the airlines' yields on Irish departing passengers. The airlines estimate that they have had to absorb c.90% of the tax, resulting in significant capacity reductions on Irish flights by the airlines. We estimate the Irish departing passengers account for c.45% of Aer Lingus' passengers and for 7-8% of Ryanair's.

 

This week , Wall street climber +3.5% , the Eurostoxx 50 index regained +4.4% , the FTSE in London +3.5% , matching the performance of Ireland +3.5% also.

 

The focus is back on the financials now that Lisbon is out of the way… A deision by the greens will swig he dabate back to the fundamentals and on that note Merrion oday publisef a report suggesting that NAMA still looks on track – Time for AIB and Bank of Ireland to raise capital. We estimate that AIB and BoI will together require over €9bn of new equity. Not all of this is required immediately but we believe both banks should avail of the market appetite for bank equity recapitalisations at the earliest possible opportunity. We also believe that both banks should move to refinance their expensive €1.5bn tranches of Government prefs before year end. Hybrid capital could present a near term solution for this refinancing.

 

While demand for credit is likely to remain weak in the near term, medium term growth in the economy is reliant on improved supply of credit from the banks. Clearly, the Irish banks need to be well capitalised, and current international market standards are moving to an 8% core tier 1 capital ratio, predominately comprised of common equity, well above the forecasted levels post Nama.

 

Have a good weekend

After a miserable dark and wet day , the sun has finally come out … Leinster will win against London Irish and the famous Belmont FC Under 8s will win their crucial match against St.James tomorrow.   ( http://belmontu8majorleague.blogspot.com/ )

Liam

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Liam Boggan

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

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