liams Last Post : Bank on Paddy Power

Good Afternoon

 

Well another day and NAMA finally got approved today in Ireland , it had no impact on sentiment and the Banks gave back some of their gains of yesterday but the mere -2.5% moves is almost flat for them.

 

I had prepared a lovely rationale as to why Smurfit was a buy last night then my pc crashed... This morning I was pleasantly surprised to find that John Mattimoe had done all the number crunching and produced his own research note suggesting a price target of Eur8.25 based on 6x mid cycle ebitda. I do like the story and I do think that the signals from them that they are confident of achieving price increases is a very positive signal for the return of underlying demand.

 

Paddy Power was the highlight today.  That I am a huge fan of this company will come as no surprise and they did not let me down today either. Yes they are expensive , jaw droppingly expensive at this point so even my bullishness can be tempered by price but operationally they are excellent and strategically their moves firstly into Australia and now into France could yet prove to be masterful.  Merrion retain the Hold recommendation on the stock , I hope you do hold it , and if you dont hold it , you should... by the time this looks cheap the growth will be gone. It is one of the few growth companies in Ireland and I believe deserves the premium for management , the track record , the strength of the balance sheet and the strategic thinking which is differentiating them from the other quoted companies in Ireland at this point and from their peers. Paddy Power was up 9.5% today.

 

SIG had a trading update , I thought it read ok , no great surprises in t and the stock tried to go ahead today after the news was slowly digested. Kingspan on the other hand reacted badly to the news and the stock fell -4% , SIG is distributor for Kingspan insulation. I suppose their comments about the slowdown in Non residential construction might have upset the Kingspan Bulls. I do think that Kingspan will struggle here and would fear that those who rode the upwave on the coat tails of the new International institutions who had been big buyers will not regret their decision to not lock in some of the gains as the valuation got so stretched. 

 

Grafton continues to make heavy weather of going nowhere , the price action is confirming it getting locked into the range of 3.00 to 3.50 having failed to break back into the uptrend over the past few days. Worrying especially as the statement contained no surprises. 

 

The Irish Government published their pre budget position paper and Emerging Economic and Budgetary Position. 

GDP is projected to decline by 7½ per cent this year, a figure which is broadly in line with forecasts published in the April Supplementary Budget. Activity is projected to decline at a more moderate rate next year – probably by around 1½ per cent – although annual growth is expected to turn positive during the second half of the year. A General Government Balance of the order of -12 per cent of GDP is likely in 2009. The National Debt is forecast to increase from €50 billion at end-2008 to an estimated €76 billion by end-2009. If no corrective action is taken the deficit is likely to rise to around 14 per cent of GDP in 2010. However, the Government has stated its intention to introduce measures in Budget 2010 that will stabilise the deficit at the 2009 level. The forecasts are the current working forecasts of the Department of Finance . 

 

to brighten up the end of the day it is unusual for Easyjet and Ryanair to have spats now but EasyJet  founder Stelios Haji-
Ioannou,  said Ryanair growth plans risk disaster. This statement brought an immediate retort for Michael O'Leary whio said it was  EasyJet's strategy that's flawed. The basis of Stelios comments was that Ryanair needs to increase passenger numbers by 50 percent over the next 2 1/2 years to fill its 200 aircraft and another 100 on order. "I am looking forward to seeing how this do-or-die mission
of Ryanair and Michael O'Leary will end up," Stelios said in an interview in London yesterday. "I believe that he will have a
lot of grounded aircraft in the next few years."  This is the nub of the issue for Ryanair , they are deploying ever more aircraft who are earning lower and lower returns and this is a concern for investors though their is a doggedness by many who get caught in the managements spell whenever they meet them on the road.

 

Another day of markets see sawing Dublin eventually closing slightly lower than yesterday , Europe slightly higher , THe FTSE which had been up for most of the day gave back almost the lot at the end of the day. and Wall street finally went lower at 4pm Irish time. 

 

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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