Liams LAst Post : Better markets , though quiet Aer Lingus strategy unveiled , Banks doe=wn grades and look forward to Tullow...

Good Afternoon

 

Another day where the markets trundled along struggling for direction. Markets opened today lower and recovered slowly through the day holding the levels and getting more confident as the day wore on helped by the German Ifo survey of business confidence which came in with a reading of 100.6 up from last monght and a rise for the tenth successive month.

 

In ireland today we were treated to the Aer Lingus investor day which we listened to with bated breath.  Ultimately Christoph Mueller told us a story about Aer Lingus which came as no surprise to anyone.  Aer Lingus is set to follow a hybrid strategy of a sort of Low cost airline offering a la carrte premium options and major city connectivity and so looks more like an upmarket Easyjet with a longhaul business which will offer interline connections to major carriers in the USA and BA in the UK. The whole plan looked a tad woolly and frankly in danger of still being all things to all people which is a recipe for cost slippage. The Cash numbers were a bit better than expected and at first the cash costs of the re-structuring looked lower but it emerged there will be further costs next year.  Frankly the strategy seems to be to husband the cash and to recognise that re-structuring to a cost base like Ryanair is not possible to achieve so hence the shift to the Hybrid model which frankly may make Aer Lingus more attractive to a flag carrier as a consolidation candidate overtime. 

 

The Tullow story is one to keep a very close eye on. This is essentially an Irish controlled company , there is a trading update tomorrow and the stock has retreated a fair bit with the uncertanty of the Ugandan governent approach the exercie of the pre emption rights by Tullow over the block being sold by Heritage.  The worry is that the Ugandan Goverment will favour ENI and interfere with the pre emption process. There was a press release today showing that Tullow and Heritage are engaged in the pre emption process and good new tomorrow could present a decent buying opportunity to get into thhis one. Tullow is one of the Merrrion preferred stocks for 2010.

 

Elsewhere the banks were inthe news with Standard and Poors revised opinion regarding economic and industry risk in Ireland and expectations regarding future credit losses. S&P cut counterparty credit ratings on BOI to 'A-/A-2', but removed them from CreditWatch negative. The stable outlook reflects their expectation that the government will remain highly supportive of BOI, BOI's core Irish banking franchise will remain materially intact, and it will raise significant equity capital in 2010, from the market or the government or both.

S&P said that BOI is set to benefit materially from the government's NAMA plan, which, from February 2010, will see BOI transfer up to EUR16 billion of its higher risk property- and construction-related loan exposures in exchange for a smaller amount of government-backed bonds. We expect this move to reduce uncertainty about future credit losses and improve BOI's liquidity. However, it will likely also trigger substantial realized losses, impairing capital. We expect that BOI will subsequently raise equity capital. Potential sources include liability management exercises, existing shareholders, and the Irish government.

 

Our view on this is that while there may be some technical negative implications and funding cost concerns it seems behind the curve. As we go through the recap process the ratings should reverse. In the interim there is still the government guarantee will cover liquidity risks.

 

Someone forwarded me the Elliott Wave newsletter which is radically bearish in its latest edition...calling for the biggest downwave ever for financial assets in an environment of runaway deflation and talks about major tops for both Gold and Silver...I hope he is wrong...however the proverbial taxi drivers are long of gold now....The Elliott wave theory newsletter calls for the market to top 'sometime in 2010'. I think that it is worth being ever watchful of stocks in this environment rather than being complacent and thedash for trash of last year has certainly put a good few stocks well ahead of their fundamentals.  

 

Watch this space...

 

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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