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

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