Liams Last Post : Feb brighter start , Ryanair the story of the day in ireland

Good Afternoon ,

 

So January ended as a difficult trying month with low volumes and lower conviction levels. During the marketing I did in the UK last week , it was clear to me that Portfolio managers still retained a sense of optimism but when pressed had so many worries and could see so many clouds on the horizon that frankly the performance of the market was not difficult to explain. No one wants to sell though and the consensus from the guys I met is that they are still optimistic about 2010 , though expect the easy gains have been made in 2009 and that the mis pricing of equities is not so apparent. Indeed the question is whether or to what extent the markets are now ahead of the curve in terms of pricing in an earnings recovery. 

 

With regard to Ireland the plight of CRH is still obvious to everyone. no one I met disliked the stock , though almost everyone was more in favour of Lafarge or Heidelberg as better themes at this point. There is scepticism about the earnings momentum at CRH and a few suggested that CRH management team would not be able to grow the business the way they once did. I suppose the Jury is out here. CRH management have a long history of ignoring short term market pressure and spending their cashflow with acquisitions which have generated attractive returns. The market is sceptical at this point and so until the big acquisition comes along , it is a bit of a leap of faith. One other view is that with so many people so uninspired by the story that the stock could react quite sharply if they do an interesting deal... here is hoping...

 

Ryanair was the story today , the stock reacting to the improved guidance and the improved yield outlook and traded in a range of plus 5% to +6% all day. In the conference call this afternoon though there was a few interesting comments one of which was about Unit costs going up by 2% . This compares with his most recent comments which we had factored into our forecasts and that was to expect unit costs to fall by -5%. The net negative swing of 7% is a lot and was a negative shock to us. However the patter from O'Leary was at a ferocious ace and within minutes of saying this he was also clarifying the calendar 2012 target of doubling profit. He was at pains to point out and for the first time that the calendar year was the target and it was a target not a forecast and there were some caveats which suggested that this sacred cow of Ryanair was also falling at the wayside. I listened intently to the passionate preaching of Michael O'Leary . I like the guy , I know he is one of the most charismatic guys around. Merrion have the stock on a HOLD rating , our view has been for a while that despite the excellence of the management team and their zeal for cost cutting that they have sort of run out of road on the easy growth and the challenge to deploy the capacity that is still coming on stream into their network while achieving yield increases is simply very hard. Our forecasts had pre supposed a +3% increase in Yields next year and in fairness , it looked as though the run rate was going better than our thoughts and the danger was/is that we would be caught out by being too cautious at the inflection point. This is still the danger now but the comments about costs certainly suggest that very significant yield surprise will be necessary to negate the impact of the higher costs... At this precise moment I am awaiting formal clarification from our analyst on his thoughts now post the conference call...but I did say two weeks ago that O'Leary was presenting Ryanair as all thing to all investors and I think that he is very much in mode now and continuing to do that.  Either way the market loves O'Leary , if the comments about costs were misinterpreted then the stock will continue to fly.. but if on mature reflection analysts have to pare their excitement of this morning with higher costs then this rally may be short lived..lets see what the GURU says..

 

Overall today markets opened nervously into the second month of the year. January was long dark and tough, February has opened better despite the weakness of the US on Friday. At 5pm the USA market is +0.84% and European markets closed +0.7% with Ireland +0.18% with the index dropping a the close of business after a better day. 

 

have a good evening 

 

Liam    

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

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