Liams Last Post : Food (Glanbia and Aryzta) for thought and AIB

Good Afternoon ,

 

Having been away for a week , it was interesting to come back today and meet with Glanbia after their announcement of their prospective deal to sell the Irish operations to the co-op. The stock is down as the market contemplates the potential overhang of stock that the Co-op will place to pay for the businesses. On the other hand , this transaction if it goes ahead will free up huge amount of management time, will be dilutive in the short term but there will be debt reduction too and the remaining Glanbia businesses will have decent growth , strong cash flow characteristics and this in turn may trigger a significant re-rating of the Glanbia stock. Management have a good track record.  I like it . I suppose the question I now for holders to decide if there will be a window of opportunity for them to sell stock and try and buy it back cheaper ? This is not without risk as the residual components of Glanbia will be attractive and if the price drifts it might just trigger some corporate interest as the stock is already not expensive at these levels.

 

 

Aryzta results this morning were in line. Management spent some effort in convincing analysts that the recovery in the consumer had not appeared yet.  Margins in Europe, which were lower than we had expected, were impacted by the company recruiting sales staff in France and Germany ahead of sales and some exceptional costs in ROI/UK. Better than expected margins in the US were vaguely attributed to a focus on cost control. The company focussed on its strong cash generation and improving balance sheet. On acquisitions, CEO Owen Killian said that the company has remained focussed on strategic opportunities and would not be opportunistic. It's focus for these remain new geographies and new channels. Overall, trading remains difficult, and the company is being managed accordingly. Our forecasts for 2010 remain unchanged at 224.3c in line with company guidance despite incremental improvements in the rate of decline of sales, We stick with the HOLD recommendation.

 

AIB announced their capital exchange offer this afternoon for c.€2.9B of tier II capital instruments.  We estimate, based on outstanding amounts and exchange discounts that full take up could generate c.€570m of equity. Take up rates will vary.  BoI had about a 55% take up rate in its recent offer. 

A gain of c.€300m to €400m would be in line with our expectations.The notes offered in the exchange carry coupons of 10.75% to 11.5%, so there will be a negative impact on future earnings potential.

 

 The quote of the day though is from the guy who likened the market action to a relationship….and said to me that if anyone was in this type of relationship where you had such ups and downs with no certainty that soon you would get totally frustrated. I am only back from a week of and batteroes are re-charged so it will probably take a few days to wear me down…but I can see his point.

 

Have a good evening.

 

Liam

 

 

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

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