liams Last Post : Markets in the Red, Tullow raises £1bn , Smurfit behaves , Greece worries and Caterpillar caution.

Good Afternoon,

 

It is a bit like a re-visit of the dark old days, markets sliding off on very low volumes , a tremendous amount of apathy around and yet stocks like Tullow oil today comfortably complete a £1bn sterling secondary placing to fund its development programme.

 

The Irish Financials reacted very negatively today , AIB dropping -1o.4% with Bank of Ireland and Irish Life both also dropping by about -5% 

In terms of the message , We were doing some reasonable business in CRH , no one disagreed with my view of the world or felt that we were not right to be positive but at the same time no one really rushed to buy the shares, CRH closed -3.3% today as the apathy on the buy side was not translating into any kind of selling pressure. 

 

FBD has been a miserable performer , and as a colleague pointed out  has now been down almost every day for the last 12 days. the stock surrendered -5.5% today.

 

Grafton has also fallen out of favour and is friendless with a -6% fall today. The outperformers were the food stocks which showed true defensive characteristics.

 

Smurfit Kappa and Mondi have both announced that they are in active negotiations over a potential transaction that would effectively be an asset swap. This would involve SKG acquiring Mondi's UK corrugated operations and Mondi acquiring SKG's European sack converting operations. SKG's sack operation is part of it specialty division and represents a relatively modest portion of the group – therefore, if this transaction is agreed, it will not be very significant in the context of the overall size of either group. That said, it would strengthen SKG's existing sizeable position in UK corrugated, while it would deepen Mondi's leading position in sacks in Europe (SKG would exit sack, a product where its position is arguably sub optimal). What is interesting about this possible transaction is that in a sector screaming for consolidation but which is capital constrained it represents consolidation moves for both parties through asset swap.  Smurfit continues to benefit from the pricing and discipline being shown by the sector and was only down -0.6%

 

Paddy Power has also cracked quietly and the stock trading now just below the Eur23 level looks like a very interesting level to get long.

 

The markets ar being spooked by Greece where a run on the Credit Default swaps got to 373 basis points. The Greek sovereign debt problem is really scaring the markets properly at this stage and positive revisions to German GDP expectations for 21010 were ignored by the market. In the USA the New home sales figures showed a slowdown and Caterpillar which reported earnings also unnerved the market with its guidance for 2010 though it said that sales would be up between 10% and 25% from 2009 levels.      Caterpillar said today that economies in North America, Europe and Japan are improving and more rapid rebounds are occurring in China and most developing countries. Caterpillar today said the U.S. economy will grow 3.5 percent which is an upgrade to its forecast of +3% that the company made in October.  Caterpillar said that Dealers had cut inventory levels during 2009 and went on to say that they expect no re-stocking in 2010 though underlying demand is picking up.  

 

As markets closed today , Ireland was down -2.3% , London down -1.1% and Europe also down by over -1% across the board with Spain falling by -2% and Greece down -3.9% highlighting the pressure on Greece right now.

 

I am off to London tomorrow, Lets hope markets improve from these depressed levels.

 

Have a good evening

 

Liam

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

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