Liams Last Post : macro concerns dominate but at least it is the weekend.

Good Afternoon

 

I hate to say it but I get the impression that the markets are now doing an impression of the last quarter of 2008. By that I mean that a wide variety of stocks look cheap and indeed the trend has been for earnings upgrades but the macro overlay has all but eliminated all short term confidence on the buy side  Every rally is being sold , indeed the rallies such as they are proving to be as short lived as they were in the bad old days…but everyone takes comfort from the rallies only to see stocks slide without any news as the day progresses.

 

Economic indicators were mixed today with US retails sales coming in higher but consumer sentiment measure took a dive. The Michigan Surveys of Consumers said its preliminary index of sentiment for February was 73.7, down from 74.4 in late January but up from 56.3 a year ago. The February figure was below consensus expectations.

 

Markets reacted initially positively today to the strong rally in the US overnight but the rally soon gave way with Financials falling quickly. The positive news from Bank of Ireland who achieved a capital gain of c. €405m.from the bond exchange was soon lost in the general sell off.   On a Pro-forma, this equity accretion would have increased the equity tier 1 ratio at end September 2009 to 7.0% from the 6.6% reported at the time. Merrion estimates assume that, before this gain, Bank of Ireland needed to raise €2.8B of incremental equity capital to reach an 8% equity tier I ratio at end F2011 post NAMA transfers. Obviously this number is reduced pro rate by the success of the bond offering so it should have been received well.

 

 The other comments which were widely reported on from the Head of the NTMA about the NAMA transfer process being on track were also of no support to the Irish banks.

 

Irish Life was very weak today on no particular news but we suspect that the sovereign debt worries are causing heightened concerns re increases in wholesale funding costs for banks and this would be a big negative for Irish Life as one of their major weaknesses is their over reliance on wholesale funding. The re-structuring of Irish Life to prepare the way for 'solving this problem by a corporate action to either inject the Permanent TSB in to the about to be created third force or to re capitalise the bank would have go a long way to addressing these issues if and when these options are executed.

 

The UK construction and builders merchanting stocks had a tough day with Travis Perkins falling by -2.7% and SIG also by -2.25% , Grafton was 'only 'down today by -0.8% but it has already been a huge underperformer relative to its peers.

 

CRH is in 'Back up the truck' territory in terms of valuations and the dollar strength vs the Euro could boost earnings by more than 2.5% fro our forecasts.

 

Smurfit is the classic stock at this point. Earnings look solid, the bias to forecasts is up and possibly significantly if the price increases announced for February are successfully implemented. Putting the potential new forecasts on Mid cycle earnings multiples suggests a price target between eur8.00 and eur10.00 per share . However in this environment the attempt by the stock to continue to rally was met by profit taking as it is one of the best performing stocks from its lows… where it got below eur1.00

 

And so the macro worries dominate sentiment ,  and Dubai reared its head today with the CDS spread jumping on concerns about the lack of a plan from them..

 

Oh Well , at least it is the weekend… and Kids mid term…

 

Hope Ireland beat France and kick off the next celtic tiger rally…

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

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