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

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