Liams Last Post: CRH -16% ouch , yes it was a falling knife... aerl performs but guides cautiously..

Good Afternoon ,

 

I have to say I wish I had stayed in bed today,,,,

 

CRH was a disaster , I am frankly shocked at how much of a downgrade there was in such a short space of time. I have never seen anything like it. The stock has been a dog for quite some time and I made a big mistake in assuming that the CRH management team would have erred on the side of caution with their July 7^th guidance and that also that given the performance of the stock and the sector in the lead up to the numbers that there was a probability that the poor news was overdone and more than discounted into the share price.  The stock tanked at the opening , tanked even more after the management presentation and as the scale of the miss sunk in and questions about the lack of visibility or poor communication and management credibility permeated the market the stock sunk even further.

 

Given that MLMN and VMC and HOLN and Wienerberger had all released numbers and all the issues were known about , surely it was reasonable to think that the CRH management would have built all these items into their guidance. If they have actually really got good systems and good communication internally and the business just collapsed in the last six weeks then it is a real worry of perhaps even bigger proportions than management credibility. Afterall the market will find a way of forcing change one way or another.

 

An interesting point on CRH though is that there is 63c of dividends to be paid (subject to this not being cut either…) between now and March of next year so the 5.3% absolute yield which annualises at 7.8% may begin to attract High Yield investors who look to pick up this yield and a stock that is now discounting a lot o bad news… just a thought..

 

Then mid afternoon the US existing hoemsales data came out showing a horribel -27% decline… and CRH fell to a daily decline of -17% Tis is being blamed on the expiry of a home buyers tax break but it is still a big number. At least the Michigan manufacturing index showed a skight improvement which took the panic away. I have to admit I have not heard such audible groans in this dealing room (to a economic number ) for quite a while.

 

I admit I was wrong on CRH but I have also been saying that the hedge against CRH was Smurft Kappa . If the double dip occurs and with the European recovery under threat , then surely SKG is now the most obvious stock to short..

 

Aer Lingus on the other hand have a much more interesting story , the official guidance was unchanged at 'No worse than breakeven@ but it is clear when you look through it and I met the management not onve but twice today that there is a political thing going on with the guidance as the Cost saving programme has run into some implementationdifficulties with staff who are now realising what they signed up for, AERL management are optimistic tha it can be resolved but are being appropriately cautious. In the meantime there has been a lot of improveents in the operations with the perormane of the Longhaul really truning around. They were also clear that there is no sign of recovery in Irish traffic but this maybe at a bottom. I suspect myself that there will be operating profit in the 20m to 30m range rather than breakeven and the current price represents an opportunity. When I spoke to the CEO after the presentation he was confident an told me that they wer on the right path with no major spikes in performance. Doing the right thing and everytie the company has spoken to the market since Christophe Mueller has taken over the story and operational performance has improved . I can only think this will play well to institutional investors abroad when they meet him . The stock has only one major problem and it is now liquidity with the Govt and Ryanair and the ESOT owning large blocks of stock so the daily volumes are  low.

 

Tomorrow is the key day in the results season in Dublin.with Paddy Power , Tullow , Glanbia and FBD numbers out.  I don't think there will be any negative surprises tomorrow…

 

Meanwhile the markets are spooked and nervous and overcome with nerves again… and I have just noticed that to cap it all that the markets are now pricing Ireland sovereign default risk at a higher level than Iceland… Thank you Anglo !

 

Have a good evening,

 

Liam

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

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