Liams Last Post : ok results from CRH ,AIB and a beat from Paddy Power , Irish life and FBD tomorrow

Good Afternoon

 

A good day for the markets , a good day for Ireland in terms of company news flow with AIB , CRH and Passy Power results today.  CRH fell 0.25% today , AIB rallied +2% and Paddy Power rose +3% .

 

Key points in a nutshell :

 

CRH outlook remains difficult, particularly in relation to non-res construction activity in both Europe and the US. Uncertainty continues to be high, not helped by visibility being poor for seasonal reasons, exacerbated by poor weather conditions. Cost reduction targets were unchanged from the early January update. The benefits from cost reduction (from both incremental savings and a reduction in associated restructuring costs) will be significant in 2010 (€460m vs 2009 PBT of €773m) providing a significant dynamic to more than offset lower LFL sales. Capex can be maintained at c.€500m which will allow further free cash generation of just over €1bn in 2010. We still expect an improvement in PBT to €1,015m (from €773m) mostly reflecting the €460m incremental cost benefit being partly offset by a modest further reduction in LFL group sales. We now assume that the 2010 tax rate will be 21% (guidance is half-way between 18.3% and 22.5%). This pushes our forecast EPS for 2010 to 112c from 108c previously and versus 94c (pre-impairment charge) in 2009.  EV/Capital Employed valuation of 1.0x remains attractive regardless of short term visibility concerns.

 

Paddy Power operations continue to perform strongly and we again reinforce the quality of the management team at Paddy Power. However, Killian and I continue to be at odds over the valuation. The stock is currently trading on P/E multiple of 15.4x our revised FY'10 forecasts (we were previously at the upper end of the analysts' range) and an EV/EBITDA of 8.6x. Killian retains the Hold recommendation , he knows I think this is a quality secular growth story with a strong management team and I for one am happy to back Patrick Kennedy and co and pay a premium for this one. Paddy Power adjusted EPS forecasts post the results are FY'10 to 154.6c (previously 148.4c) and FY'11 to 174.4c (previously 167.3c).

 

AIB's  results did not contain much that is different or new, the big change is that management clearly has a plan for capital, strategy and operations and It is clear that management will look to generate capital internally before taking recourse to shareholders, something that should be taken positively.

Therefore, the sale of M&T and a transaction involving BZW look likely.  Combined, sales of these assets would reduce our capital requirement forecast (€4.4B before any liability management) by c.€2.7B at current market prices. Our concern remains that while shareholders would benefit from not having to put up more cash, they could be diluted from any BZW transaction either by having a smaller interest or through a potential strategic investor directly in AIB.  BZW is a relatively high RoE and attractive business, and the disposal could impact the valuation of AIB.  With no strategic overlap we prefer to see M&T disposed. We expect a debt exchange announcement imminently; this might generate a few hundred million subject to price and timing.

Our initial thoughts are that our 2010 forecasts look a bit light on revenue and llps in Ireland, offset by our costs and llps elsewhere being a bit too high. 

 

 

And so tomorrow  we have Irish Life and  FBD tomorrow , 2 Financials with differing experiences today… FBD sinking like a stone… -3.45% ahead of their results and Irish Life +7.6% as its volatility continues…

 

 

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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