Liams Last Post : 3 more companies underpin grounds for optimism from here...I.Life , Kerry, Grafton

Good Afternoon ,

 

September looms and today we had three company results from important bellwether Irish Companies…Grafton surprised on the upside suggesting a continuation of the positive trends in the UK merchanting indeed noting an acceleration of the improving like for like trends in the UK in July. They did mention that people were talking about a softness but they seemed confident . Ireland also showed a major shift as the rate of decline of merchanting sales has effectively stopped. Cash flow remains strong and with the cost having been taken out there is a lot of leverage if we are at an inflection point. That being said on the basis of 2010 numbers the stock does not look that cheap but that it to presume a steady state from here. I hope that we are indeed bumping along the bottom.

 

Irish Life too surprised on the upside with positive noises about the magnitude of loan losses and better than expected net interest margins. The story from here will be driven by the markets view about the potential of a merger with the EBS to shift the funding profile or loan to deposit ratio balance for the better. We estimate that it would improve the ration from 240bp to 200bp , still way out of whack but a significant move in the right direction. There is still on our estimates eur8.90 EV in the life business… yes that is eur8.90 per share… so if there is any way of solving the bank capital problem there is a lot of value to be unlocked here. In the meantime the stock is likely to continue to trade nervously as a play on Sovereign risk given the exposure to wholesale funding markets. Irish life was probably the biggest surprise as the company has had the most accident prone record until now of disappointing the market with some surprise negative.

 

Anglo reared its head from the great undead where is behaving like a vortex sucking the life out of every living creature on the island of Ireland…Seems to me that there is a shift of mood amongst politicians and suggestions from some international voices that at this stage with sovereign spreads discounting a worst case scenario that maybe the Anglo bond holders should take a haircut as their investment was not supposed to be risk free especially given that equity investors got wiped out.… this might even be a positive development as it would draw a finite line in the sand under Anglo. Officially it is not the case though… watch this space…

 

Kerry marked a welcome return to double digit growth with impressive results and margin expansion and an upgrade to guidance . Can't help thinking that the return to double digit growth is not a short term one off blip. There is substance behind this and conviction as to the future. Kerry should be a core holding now in European portfolio's and the stock is good value with acquisitions to come.

 

And so despite an appallingly weak international market when we came in to work this morning sentiment turned positive throughout the day…

 

Who knows what is in store in September..but if today's results are anything to go by it would give you some confidence that the talk of the double dip is just that and that there are some companies who are proving themselves and at some stage international investors will begin to recognise this value.

 

Hope you have a good evening.

 

Liam

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

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