Liams Last Post : Dubai scares again, end of November flurry of Irish Corporate news.

Good Afternoon ,

 

Well the Tale of Dubai continues to unfold with the Dubai Minister for Finance pointing out that while Dubai World is state owned it was set up on a commercial basis and the debts are not state guaranteed. The Minister said that the projects were financed on an individual basis and the Government of Dubai would not guarantee them.

The FT outlined that the problems in Dubai are likely to raise issues of the compliance of many bonds issued as Shariah Bonds with full compliance with Sharia law.  Don't ask me anything about this  but it could be a hornets nest of itself. 

 

Plenty of Corporate news today also with Aryzta reporting numbers which were weak, and commentary and tone was cautious. the company is continuing to see a decline in consumer sentiment and has little visibility over when recovery will occur (management suggesting that it does not expect a return to top-line qrowth until perhaps Q4 FY2010). We were expecting a somewhat more positive tone on outlook with perhaps some signs of stabilisation in some geographies. Margins improved 120bps in Food Group driven by yoy Grange Castle benefits and further in-sourcing of product in Hiestand. Some commentators had suggested that Q1 was to be a low point in the revenue cycle. We have amended our forecasts for FY2010 and are now forecasting divisional revenue growth/declines as follows: Food Europe revenue -4.6% (previously -4.2%); Food USA revenue -7.4% (previously -6.0%) (FX @ $1.50/€ is a 9.4% decline yoy); Food Developing markets +5.0% (previously +4.4%). Operating margins in food now forecasted to be 12.3% (previously 12.15%). For Origin we have reduced our expectations for the FY slightly with EPS now expected to be 33.6c (down 1.5% from previous forecasts). Overall for Aryzta, we forecast EPS of 224.3c (broadly in line with management's guidance) a 0.2% reduction on our previous forecast.  

 At €25.15 the stock is now trading at 11.2x our FY2010 EPS forecasts. We feel a multiple between 11-12x forward earnings fairly values the business , Retain Hold,

 

However our friend Jon Cox at Kepler which being equally cautious was anxious to point out that while there continues to be a decline in sales , that management have not rowed away from the target to Double profits over five years and that with four years to go and a balance sheet which will support a decent acquisition he remains a Buyer of th stock arguing that the valuation is a discount to the European peer group. You pays your miney and takes your choice as they say but it is interesting the differences of perception between a zurich and a Dublin based analyst on the stock.  Aryzta rallied +1.2%

 

Origin which is 70% owned by Aryzta also reported today, Numbers are a car crash but probably the low point here. I like K+S and do have a sympathy (which took me a long time to understand or appreciate why farmers would have long term relationships with Masstock) and from what I know about the impact on Crop yields from taking a fertiliser Holiday , I think that origin should hopefully see some recovery in the near future...Origin closed +4.7%

 

Bank of Ireland held a Conference call after the said they formally propose to Join NAMA. There was some confusion and nerves about the way they had changed the wording in their statement but it appears that Bank of Ireland management want to put out what they now perceive as the the worst case scenario in terms of an actual amount of losses to be crystallised post NAMA but the number still appears to be comfortably within their previously stated guidance of 6.9bn. As a reminder Merrion analyst Sebastian Orsi has based his BUY recommendation on 9bn of losses so if the loss managed to come in the region of Bank Guidance then there is a lot f value here to be unlocked (including taking into account a rights issue)   Bank of Ireland closed down -5.3%

 

Irish Life management came in to meet the desk at Lunchtime today. It was very hard to get excited with this meeting. I was struck by the management team actually saying that the expected losses in commercial prperty that they mentioned on their IMS call were already factored into the capital base. The market reacted very badly to the statement , the share price has tanked and yet here was the CEO , The FD and the Head of Investor relations shaking their heads about the fact that they had singularly failed to manage to persuade the market of this point. We also learned today that two of the properties concerned are in Europe and not ireland which would have been at least a start in the communication stakes. Luxembourg and Brussels and that they will write back the values of their HQ buildings if and when Jones Lang tells them they can... It would appear that there are a lot of advisors urging extreme caution so the IMS was more cautious than they would normally have been. The market also has started to believe contrary to the management that they are excluded from the third force whereas on the view of CEO Kevin Murphy the Irish Nationwide/EBS merger is the first step prior to the Permanent TSB getting involved and negotiating witht he Government who will effectively control the Nationwide /EBS entity.  Theo other interesting snippet is that the deal is unlikley to be consummated before the end of 2010 at which stage the management team were suggesting that the Bank would be close to being profitable again and thus have a value higher than zero. There will be a rights issue here too mabe towards the end of Q1 to re-capitalise the bank. This is already in expectations. Second bite at the Cherry. I think we can safely say that the management have created a buying opportunity , it just takes time to uncover it... Irish Life closed today down 7% ...

 

And then C&C did their deal , well received acquisition of Constellation brands Cider businesses. I have read both statements , C&C are buying a business which is performing and which will be accretive to them in Year one, It seems a sensible extension of their strategy to become a distribution business with operating leverage potential rather than just trying to turn around a single premium or Fad brand. Either way the market liked it and the stocks rallied +8.5% 

 

Plenty of weakness today , on small volume , end of capital gains tax year sparking profit taking across the board on thin volume. Institutional business quiet unfortunately. Total produce got whacked -8.5% ,,, think this is an opportunity...on low volume 

 

So December looms ....

 

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 : markets rebound as buyers take advantage of weakness

Good Afternoon ,

 

Strong end to a hairy week,  Markets reacted nervously this week , initially on the sell off in China at the weekend and then to the news from Dubai that they were seeking a standstill agreement with Bond holders.  That and the London Stock exchange technical breakdown made sure that Thanks Giving day was one to be remembered for al the wrong reasons… But the falls yesterday were on quite light volume , there is definitely money looking to be put to work and rather than a sense of panic ,  the atmosphere was definitely calmer with investors looking for opportunities.

 

Today as the week closes , there is a rebound in Europe though the USA catches up with a downward moves of -1.2% at this stage.

 

Across Europe the Financials have been the hardest hit sector down -3.85% , though there is a wide variation of performances within that group. Most sectors recorded losses this week , IT-2.1% , Industrials -2% energy -1.8% with Materials , Consumer discretionary and Utilities all down roughly -1.5%

 

In Ireland this will be the week remembered for the Public sector strike and the massive shopping day up the North. Next week the Public sector are going on strike again. It is incredible that the only sector with guaranteed employment and pensions went on strike for a day in a move that generated not a single iota of good will from the Private sector.

 

This week the only Corporate of note to report in Ireland was Greencore , the numbers were ok , we nudged up our forecasts but the stock has been quiet as the Carroll Stake placing is awaited

 

I still continue to Like CRH and having once again rebounded back into the 17's after testing the lows , I am happy that this is indeed a level to be buying the stock. Smurfit announced another price increase and with the mark down the price has come back , again an attractive level. Grafton is back at the levels I am happy to strongly push again and Irish Life has finally found a level where buyers are prepared to come back into the stock.

 

I have to say that I think that many of the ISEQ companies are at attractive levels , we have heard from almost the lot of them over the past few weeks and there has been no surprises and indeed a few upgrades and this is very significant looking ahead to 2010 and the next few crucial weeks to reposition portfolios to take advantage of  the recent pullback by adding to positions at these prices….

 

 

Have a great weekend ,  Aryzta numbers on Monday , they wont be good but we all know that …. And Ireland vs South Africa tomorrow…. The big test for the Iceman Johnny Sexton…

 

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 : Thanks Giving ... not for equity investors as Dubai scares the markets...

Good Afternoon ,

 

Thanks Giving Day was one of those days when the risks that we all try to forget about come back to haunt us….. The Dubai World scare managed to unnerve markets across Europe and with the USA closed , volumes were thinner than usual so the volatility got amplified

 

The markets were awaiting the start of trading of the Lloyds Nil Paids tomorrow and this huge rights issue certainly did not help sentiment today.  The worries about who has exposure to Dubai is also one of those issues which has unnerved the financials sector. It is not certain how or what the ultimate outcome for Dubai will be and hopefully it is just a standstill agreement while they re negotiate terms etc rather than a default but nerves were frayed and the sell off into the close today highlights the fragility of sentiment.

 

Dubai has $59bn of debt and it may be forced to hold a fire sale of real estate investments worldwide to help realise cash to pay down its debts. Dubai holds significant investments in UK property so this could put pressure on the Commercial property market in the UK.

 

The LSE problem also contributed to the nervous environment.. Markets closed approximately -3.5% on average across the board , this time however Ireland was only down -2.5%.

 

In Ireland there was some significant volatility today , AIB was down -10% at one stage , though it closed down -7.6% , Smurfit was also down at one stage by about -9% but closed – 3.26% , Grafton headed closer to the Eur 3.00 level and closed at 3.09 -5.3% .  Aer Lingus is within 10% of its absolute lows experienced during August , the bones of he plan are known , we await its execution but in terms of an opportunity to take another look , it is very interesting again.  On the large caps or certainly larger cap stocks in Ireland , CRH which had been really looking better over the past few weeks has dipped below eur17.00 , just at the point where it looked like this was bottoming out.  I was banging the table about this a few percent higher … I see no reason t not bang the table a bit harder right now…

 

We hosted a Roadshow with FBD in London yesterday , it went well ,.and the analyst who had liked the stock came back even more confident having had the privilege of hearing the management present 6 times and to question them about issues between meetings. Big Free Cash Flow Yield on this one….

Total Produce fell -5% , this is a range trading stock , this is an interesting levels again.

Some interesting Irish Economic statistics….never timely unfortunately but worthwhile contemplating nonetheless. Exports rose in September after falling in July and August, according to fresh preliminary figures from the Central Statistics Office . Seasonally adjusted exports rose by 11 per cent during September to €7.2 billion, while imports fell by 2 per cent to €3.4 billion. On an unadjusted basis, the value of exports was unchanged from a year earlier, while the value of imports was down 26 per cent. The trade surplus was up 43 per cent to €4 billion. In the first eight months of the year the value of exports stood at €57 billion, unchanged year on year. Imports decreased 23 % from €39 million to €30 million.

Exports rising is a positive sign , says something about increasing competitiveness and maybe something about better world demand though our exports to Germany and Britain were down. Exports to Germany fell -20% and Britain down –15% but exports to the USA were up by +13%. In terms of the detail , Ireland imports and Exports of Computer equipment were down sharply in Both directions , and Exports of metal Ores was also down sharply. It will come as no surprise to know that Car imports were down -78% as was consumption of Petrol.   

At least no need to worry about the Wall Street close tonight.

 

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 : ANglo pursues its former CEO , Greencore talk the talk but investors wait for the placing.

Good Afternoon ,

  What goes around comes around....The most interesting news this evening is that Anglo Irish Bank has issued proceedings against its former chief executive David Drumm relating to a recent move by the couple to transfer property out of their joint names into Lorraine Drumm's alone. That would have the effect of putting the property which was used as a security on a Eur8m loan out of reach of the bank.

Wow is all I can say... a NAMA case in his own right ?  I wonder how the other directors are getting on with their loans... Putting the property out of reach suggests that they are all caught on the horns of their own hype that the market would go on forever and now it looks like the collateral which is obviously personal recourse to the family home etc maybe called…. There will be few tears shed when this news which appeared on the RTE website gets into general circulation.

 

In Economic News in the USA today , the good news continued to come with Sales of single-family homes increasing +6.2% to a seasonally adjusted annual rate of 430,000. Home sales in September fell 2.4% to 405,000. Year over year, sales were up 5.1% since October 2008 and Inventories declined. There were an estimated 239,000 homes for sale at the end of October. That represented a 6.7 months' supply at the current sales rate. An estimated 250,000 homes were for sale at the end of September,  equivalent to 7.4 months' inventory.

 

Greencore produced its results this morning , , all looked ok and certainly the company is continuing to talk the talk about the prospets in the USA. The disposals of Water and the possibility of a disposal of the MAlt business would take pressure off the fears about how they would fund this growth. THe stock was however quiet onth enews and closed +0.54% , obviously buyers await the Carroll Stake placing...

 

The Banks were a bit better today , not much on the news front , I spent the day yesterday with one of my Kepler Friends Dirk Becker and the subject of bank capital and amounts which needed to be raised across Europe just reminded me about how the Irish Banks like their European breethren were too slow in recognising the looming problems and they have faile drepeatedly to take advantage of any opportunities to tap the markets for the capital that they require. It woudl appear that Bank capital is back, on the agenda across Europe again , It never went off the agenda in Ireland but the scale of fund raisings suggests that the banks who move fastest when or if any window opens up will be the best positioned over time. We have written a note to that effect some time ago but the shift in sentiment since the heady days of September when some of the large European Banks were testing the waters for investor appetite with investor days and presentations which served to get everyone bulled up for a while are now firmly behind us...   

 

The Irish Market opened at its high and range tradede before taking the decisive move downwards at midday. Looks Like someone range the bell to trigger the sell off or just nerves ahead of the US economic releases.  Most markets rallied at 14:30 but Ireland and it does look like Wall Stret too has seenthe best of the day. Lets see how it plays out . 

 

The Dollar continues to Slide to 1.5088 and Gold touches $1200 an oz with Oil just a touch stronger

 with Brent touching $78 a bbl.

 

 

Thanks Giving Week , a big week for US retail sales , not many irish flocking to take advantage of the weaker Dollar , I was pleased to buy my son a new bike for his 1oth Birthday yesterday. I was left scrambling around Dublin as inventories appeared low for some reasonand I was pleased to buy the appropriate bike. I have to say I was less pleased to day to see that the same Bike is for sale in Belfast for a whopping 23% less ...Guess where I am going to my christmas shopping....it wont be Dublin.

 

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 better day , Cyclicals and construction in Vogue in Ireland

Good Afternoon ,

 

European markets opened strongly this morning after the performance of the US on Fridaynight , Sentiment improved today though markets have been range trading in quite narrow ranges for some time...

 

CRH , which I had pointed out had been a massive underperformer jumped +3.5% today and outperformed its peer which were also up but within a range of 1.5% to 3% , so maybe just maybe it is begining to show some relative strength. 

Grafton is still consolidating at theselevels , I have to admit I am getting more comfortable with this one at these levels but would like to turn more aggressively positive if it dipped down towards the EUr3.00 level. 

 

It was the cyclicals who returned to favour but the market was overall better so it was just degrees of performance with Smurfit also coming in for support and closing +3.3%. Smurfit was reacting to the news RISI reports that Spanish containerboard producer Europac has announced it plans to raise kraftliner prices by 60 per tonne effective January 1. It previously raised kraftliner prices by 60 per tonne from September 1. Europac notes that the shortage of kraftliner production in Europe and declining imports from the US have decreased stocks considerably.

 

The foods which had been an area of safe refuge in the past week also benefitted late inthe day as Kerry which had been down -1% at one stage closed the day +0.6% 

 

Irish Life is still struggling , I do think that the current price levels are attractive though so am encouraging clients to use the weakness as a buying opportunity. The absence of the third force proposition , the capital hole and the increase in Commercial property writedowns is the issue though but we are resolute in our belief that the stock is worth eur 6.00 so it has to be attractive here. 

 

AIB and Bank of Ireland benefitted from a generally more supportive environment though AIB closed +2.1% and Bank of Ireland +0.6%

 

Tullow was off about 0.5% despite the prce fall of -4.6% from its former Ugandan partner Heritage in the news of their disposal of their stakes in Uganda to ENI. The Tullow price is resilient at these levels despite the fact that on conservative valuations it looks expensive. The market is prepare to take a view of the porpsects of the Tullow acreage and prospects and wait for reserves to be proved up over time.

 

Aer Lingus reacted to the notie of the London investor day with an element of bemusement .... the stock was up 0.89% , the market awaits news from the management and the outcome of theor engagement with the Unions at the labour Relations comission. THe market need to know this management can deliver , the previous CEO Dermot Mannion cost saving plan was a coup for the Unions who negotiated some cost savings with a long payback . THis time , it has to be quick , all achieved in one go and cant be seen as a sop to the Unions...

 

ICG jumped +3.8% better probably helped by the media story at the weekend that the emergence of a trade buyer was becoming more likely in the aftermath of the placing of the Carroll stake,.

 

The Greencore price was flat on the day , despite the media stories about an imminent placing of the shares of Liam Carroll and the news of the disposal of the Water business and the interest in the Malt business which if disposed of would provide the capital for Greencore management to execute their USA growth strategy. I like the notion of what Greencore are planning to do. I am aware of the success of the European retailers and the rapid growth of private label in the USA but I am just not so sure that Greencore have any defensible long term unique selling point to be successful in the USA. This is heresy for some who think that Greencore can do no wrong but first they have to make the divestments and then re-invest through acquisitions. The stock is not expensive though so while the Jury is out on their ability to execute their USA strategy, if they can , then there is also significant upside to the sharepirce from these levels.

 

Across Europe markets were well up today , THe DJ Eurostoxx 50 index was up +2.2% , the Dow Jones +1.3% , and London +2% whereas Ireland was +1.4% .

 

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 : Tough week , Ireland recent weakness presents opportunities ?

Good Afternoon ,

 

As Roy Keane says.....Get over yourself...its over , France are going to the World cup.... but it was a welcome distraction from an otherwise miserable few days in the markets.

 

 This week the US market has managed a marginal positive return of +0.12 % , Europe -1.7% , the UK -0.85% and Ireland down -3.74% .  The Irish Financials were amongst the worst performers , Irish Life down a sorry -26% , AIB -12.6% and Bank of Ireland -10% , CPL resources slipped -9% also and Independent News quietly slipped -10.5% .  On the bright side Fyffes was up 10.5% , Kingspan +3.3% and Elan +2.6% with Total Produce gaining a mere +12% .

 

Sector wise the European Utilites lead the way with a positve return of just over +1% and approximately the same returns for the materials stocks.  The financials were down -1.5% overall followed by consumer discretionary down just over -1% an then IT and Industrial and Healthcare all down just over -.5%   In Europe the Capital markets banks were the worst performers as sentiment swung negatively , Followed by the commercial ones down -1.5% and then the insurance stocks.

 

Containers and packaging were down just under 3% followed by the construction materials and Metals and Mining stocks up +2%

 

CRH has been a huge underperformer and is now starting in my view to be showing some signs of resilience and I think that the risk for portfolio managers who don't own it is rising as we look to a consensus expecting rising earnings from next year.

 

Ireland has been the standout underperformer but is still outperforming year to date and the pull back should be seen as revealing opportunities as one by one the Irish stocks pass the inflection point in their earnings cycle. 

 

Second bite a the cherry ?  look carefully, there are opportunities.... some great value and some stocks which are high quality where the debate rages even amongst ourselves about what multiples you should pay for quality businesses which are cyclical at this point. For Instance stocks like Kingspan which have indicated they are past the bottom,the pull back certainly makes prices easier to swallow.

 

I think that as management team after management team put forward their case that they think they are past the bottom, this pullback should be looked on very much as an opportunity though the intra day volatility is big enough to continue to make investors nervous.  

 

Have a great weekend , We turn our attention to the Ireland vs Fiji match this weekend...it will hopefully be a bit of fun. 

 

 

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 : weaker day , FBD and Kerry do OK , Irish Life bleed and Ireland reels from the hand of the Frog...

Good Afternon ,

 

Screens dribbling blood red all day today….all markets down …. Irish Sentiment impacted by the Thief of St.Denis with his very own version of  two touch football….oh sorry was that two handed football.  At least Paddy Power refunded all the losing bets , including the lunatics who had bet on Ireland winning the world cup outright…the only amusing conversations today were about the calls for a replay…

 

FBD , Kerry and Greencore and C&C were the stocks in the news in Ireland today.

 

FBD the General insurer released an IMS guiding Operating EPS will be ahead of the analyst average of 86c while our forecast is 103.5c which is at the top end of a wide range of forecasts. The key to FBD is where the NAV bottoms out and while indicators suggest that the NON irish stuff on their balance sheet may be in markets which are tightening, the market will want comfort on what the actual NAV will be. The operational side seems fine with the rate of premium decline in H2 has slowed relative to H1 (down 9% at at the interim stage). It looks like we will trim our numbers for the gross written premium figure by c.€5m (to a full year decline of 7% from 5%). We expect this to be offset in part by a slightly better claims experience than we have in our figures.  This stock is cheap though and while it may take the NAV to b revealed to trigger a rally, it is cheap enough to be building a holding at these prices. Give or take, it is 1x book, 7x earnings and at or near the bottom of the earnings cycle. The market did react very positively initially but in the course of a weak overall markets environment, the stock surrendered the initial 11% gain to close up +3% . Allowing a decent second bite at this one.

 

Mid morning , Greencore who have been linked to unsolicited bids for their Malt business actually announced that they have managed to agree the sale of their water business tio Highland Spring in Scotland  I can only presume much to the relief of the management who escape with eur19.6m consideration for a lossmaking business payable on installments.

 

C&C were up next this morning with ac Neilsen ontrade data which showed Volume growth in August and September slipping back into negative territory after two months of positive growth in July and August. In the last four months of on trade data, C&C volumes have broadly stabilised (+3.4%. +5.3%, -1.5%, -2.96%) when compared to the y/y declines of 25-35% through 2008. This stabilisation has been achieved through the y/y growth of Magner's Draught and the success of Pear in 2009. The challenge now for the company is to develop a strategy to grow volumes in the on trade. Distribution was broadly flat at 60/61%, with draught distribution up to 10% from 9% and pear distribution at 21% (23% in Aug, 20% in July). Bulmers' distribution remained flat at 49/50% over the period.

 

Kerry issued an IMS this afternoon (1.35pm) covering the ten months to end October. The company reiterated guidance provided at the time of H1 results of "upper end of the range of 160-165" in line with our forecasts of 164.2c. Reported revenue is down 6% (a disimprovement from H1 where it was down 4%). The commentary in relation to this referred to currency fluctuation, lower pricing and discontinued businesses.  Overall, we expect to be adjusting our revenue downwards and margin expectations upwards for the full year but will expect to be around the same EPS level. Strong performance from US Ingredients in terms of volume growth for the quarter is encouraging. The company reported that good progress had been made with the integration of Breeo and that the company is performing in line with expectations. The stock is trading at a discount to international peers but increasing confidence that the Kerry US ingredients strategy may lead to an acceleration of earnings growth could trigger a re-rating of this one from here.

 

Irish Life still continues to bleed heavily having puncture their own credibility with their IMS. As it was put to me eloquently, You cant expect the market to forgive you for not mentioning an area of concern and then having a warning about it. And it is as simple as that… and so the stock fell yet another -6.9% today to go back to the low of yesterday… We are happy to retain the Eur5.95 price target but while sentiment remains as negative as it is , it also provides a potential value opportunity for the patient.

 

At 5pm today , most European and UK markets and the US are off about -1.3% to -1.8%  

 

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 : AIB IMS no surprises , united drug looks positive and Irish Life the value play ?

Good Afternoon ,

 

Today started with the AIB interim management statement , the key bit of which was that the full year loan loss guidance figure of c.€5.3B reflected an increase due to expected losses on NAMA transfers (Guidance was €4.3B guided excluding NAMA).  This compares to €5,973m of loan losses in our forecasts for 2009.  AIB also said that  "there is no reason to believe that the average discount applicable to AIB's NAMA eligible loans will fall significantly outside the Minister's guidance of 30%" and there was no material change to expected losses on bad debts and NAMA transfers.  Of the €24B expected to transfer to NAMA, c.€10.5B is expected to be impaired by end 2009, with llps of €4.2B taken against the loans. It is notewirthy that loan losses are coming in inside the Merrion forecasts while underlying pre-provision profits are broadly in line with expectations. We are going to review our forecasts with a bias to the upside on our three year loan loss forecasts (currently €12B) and in the meantime , the HOLD recommendation stays with the preference being for Irish Life.

 

And on the subject of Irish Life and Permanent , it has to be said that the management did not exactly doa great job at instilling confidence in their audience last night so when KBC asked to be suspended this morning ahead of the EU announcement re the KBC re-organisation , it was the Irish Banks and Irish Life who fell on general nerves.  Irish Life fell to a low of 3.45 before the KBC plam was approved by the EU. This took the pressure off and the stock rallied. Bank of Ireland recovered from being a few percent down to close the day +1.2% , Whereas Irish Life closed the day -4.7% , which was a 6% bounce from the low.... It would appear that the management team may be trying to be conservative in their acceleration of loan loss provisions or trying to kitchen sink numbers for this year in which case the concerns about commercial property may be overstated. 

 

The capital hole though is a concern though we are resolutely sticking with the Eur5.95 fair value target and given the weakness today , Irish Life now stands out as the play in the Irish financials. Bang the Table Cheap... 

 

United Drug was the other story today...We are increasingly positive on the outlook for UDG for FY2010 following the meeting with management this morning. The Concerns leading into the results would have rested predominantly in the ROI wholesale and medical and scientific businesses. The commentary from management (which has a good track record of predicting government moves in relation to the industry) suggests that the impact on United Drug will be contained within our current forecasts. CEO, Liam Fitzgerald, suggested that the likely budget moves will be on a prescription charge (as leaked by Mary Harney) and that more impactful changes (such as generic prescription changes) are likely to be a number of years' away if implemented at all.

 US packaging is recovering well and benefiting from swine flu related volume increases of Tamiflu, whilst vaccine distribution in the ROI will add profits to the HSC division in the current year. Thee is the potential for further acquisitions and also the treturn of a UK contract throught the packaging business. If any of these positives come to pass there may be considerable upside to our forecasts of 2% EPS growth and the current valuation could turn out to be  undemanding in this context. 

 

 A deal between the EU and the Latin American exporting countries over banana duties was said to be imminent. Fyffes annual duty bill is €100m so a cut from €176 to €114 would reduce the duty bill by 35% over the 7 year period. The reports in the media suggest that this reduction will happen over 7 years which was one of the areas of disagreement. The initial reduction in year one was also under discussion, a reduction to €148 per tonne has been referred to, -16%. The question then is how much of the saving does Fyffes retain – in the past, Fyffes estimated it could retain 20-25% of any saving on an annualised basis and the balance would be eroded by competitive forces. The market remains tight in Europe so importers like Fyffes stand a good chance of retaining a reasonable share. The news was good enough to drive the prove of fyffes higher by 9% today.

 

Overall It was one of those days...the financials continued to dominate , markets were up and down , see saw like , London and Europe were lower and Dublin which opened higher and dipped up and down eventually closed marginally higher...

 

Ireland are playing France tonight and we are relying on a magical performance to beat the French in their home by 2 goals in order to kick start the 2011 economic revival... 

 

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 : Irish Life view of commercial property unnerves the financials

Good Afternoon ,

 

A dispiriting day to be honest , yes we had been big fans of Irish Life and had been gamely marketing the story with a Eur6.00 price target and had been more bullish with the prospective opportunities as the share price fell back recently. So i am somewhat disappointed with the Irish Life IMS statement of this morning which revealed two issues ,the first being the solvency capital position in the life business relating to property hitting the net worth and the capital deficit in the bank given the increase in loan loss provisions.

 I am disappointed with the jump in loan loss provision guidance in the commercial loan book , it had not been mentioned as an issue before so the management team manage to find a banana skin which has unnerved the market. The question of why now for the uplift to the loan loss guidance is relevant especially as it pertains to commercial property values since June or indeed when the company last spoke to the market in August. 

 

Irish Life appear to have decided to move to a more drastic approach to commercial property valuation than their peers and relative to what is in expectations...which is worrying but we will see tomorrow what if anything AIB add to the debate with their disclosures tomorrow.  The llp rate on the Commercial Real Estate book in H1 was c. 275 bps, they are implying c. 700 bps in h2 and by contrast BoI was 97 bps on investment in F2010 H1 to end sept across UK and Ireland while AIB investment book in ROI in H1 09 saw a 164 bps provision rate.

 

Having debated the issues though we do still believe there is significant upside to the stock prices but the surprise of today muddies these waters. We have calculated a fair value per share of 5.95 so with the price closing today at 3.88  there is significant potential upside to our fair value. 

 

Needless to say the negativity re Irish life spread to both AIB and Bank of Ireland who were each down by more than -3% today.

 

Kingspan is another stock worth noting here as we confirm our new forecast for this year and next. We have finalised 24.5c up from 22.3c for 2009 and 21c from 20c for 2010 with our expectation of a the first up year being 2011. It is significant in my view that we have passed the point of the first upgrades. We have a hold recommendation onthe stock and the analyst argues that the current price is appropriate given the point inthe cyle and discounting back from the mid cycle numbers to today. This approach is very fair and conservative and valid but I suspect that when we get to the mid cycle times , that the world could have moved on and that this company in particular may have moved to pay down debt , re-institute the dividend or do a sizeable acquisition. THe bear view is that it is appropriate to have a hold if the owrld goes pearshaped. I think it is a buy here , or close to here and would be building positions with increasing confidence from this point on.

 

At 5pm , Wall Street has given back 0.25% from its recent highs , Europe was down about -0.7% lower , London was down -0.7% and Dublin remaining the weakest link was down -1.75% ....

 

THe Irish government raised a further 1bn in a bond issue today and ha effectively started to prefund next years exchequer borrowing requirements .

 

Have a good evening . It was not a great day....

 

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 : Kingspan passes inflection point to get upgrades...and the banks nervously await Irish Life and AIB IMS this week.

Good Afternoon,

 

Kingspan IMS was the highlight of the day , an impressive performance from a soft spoken management team. The key points to emerge were that the sales have stabilised now on a run rate basis and this confirms what the company had indicated in September. Operating profit will be higher due to tight cost control , Debt levels are below what our full year forecasts are and guidance for Capex reducing by half again. Company now expecting profits in the region of Eur60m and a small decline next year but off the higher base so we uprgade our earnings for this year  and next....A significant moment... past the inflection point.

 

The building materials stocks in Europe were strong , with St.Gobain and Lafarge up just under 3% , though CRH was only able to manage a +0.7% gain.  Grafton remains stuck and closed today at 3.26. Kingspan was up +4.25%

 

Bank shares in Ireland sank today ahead of the Interim management statements due from Irish Life (Tomorrow) and AIB on Wednesday and FBD insurance on Thursday.  We like Irish Life for the valuation of the Life Assurance business and we look for any news about the changing corporate structure and about the Third Banking Force or not.

 

There was also news that the Greek banks were told to seek funding options other than the ECB as the ECB is likely to tighten its supply of liquidity next year.  The greek banks have been amongst the biggest users proportionately of the ECB funds. This was offered as part of the reasn why there was pressure on the Irish banks.

 

Total Produce and Fyffes were up 2.4% today. 

 

FEd chairman Ben Bernanke has just released te text of a speech he is making today suggesting that the economy pick up is more than just temporary factors. He also commented about the dollar which he says he is attentive to the changing value of the dollar and the implications for inflation. He is to talk about the dollar in the dual mandate of maximum employment and price stability.

 

The market is in positive mood yet again though with wall street up +1.2% , Dublin closed down -1% ,  The FTSE + 1.6% and Europe is up +1.5%.

 

As usual , it will be interesting to see where the Dow closes tonight , but more interesting to see how the market reacts to the Irish Lfe numbers. I think there is value here now at this level so I am looking closely for opportunities to really get behind it. We ar close 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.