Liams Last Post : Ireland injects capital into AIB , draws line under Anglo , Bank rallies whilst Irish Life tries to

Good Afternoon,

 

Today marked another turning point in the adventures of the Irish economy. Minister of Finance Brian Lenihan played a sure footed hand this morning with the carefully orchestrated sequence of statements. Yes the news on AIB is bad news with an extra 3bn of capital required. Better for this to come out today and throw the Anglo story into the background. How on Earth the Minister was ever going to be in a position to convince the market of the ultimate cost of Anglo was always beyond me. Instead by dealing with AIB unexpectedly even though the news is bad turned out to be good news. Bond markets reacted positively with bond spreads vs Germany shrinking to a mere 437bp. The pricing of the underwriting of the Capital injection at approx 1x book value is also probably in order to ensure that some value was left on the table for existing shareholders. I presume there wont be a stock exchange investigation into the rally in the AIB share price from 3.30pm yesterday. The Government were privileged to be in a position to take advantage of the high closing price to announce their underwriting was taking place at a discount.  Colm Doherty becomes the latest CEO to depart. Interesting this a s AIB had resisted efforts by the government to place an outsider into the CEO role in 2008.  AIB traded down sharply in late morning touching a low -27% down on the day before rallying sharply to close -7% down. This is some performance and I suppose reflects the news that a government majority stake was inevitable. A 92% stake though is effectively total control.  I wonder how many institutions or retail investors will be willing to support the capital raising at the underwriting level of 50c per share.  

 

The main beneficiary of the news today was Bank of Ireland which continued to trade in heavy volume (103m shares or just under 2% of the market cap)  The news that the regulator declared that Bank of Ireland continues to have sufficient capital is a positive and the relative valuation gap between Bank of Ireland and AIB just highlights the relative attractiveness of Bank Of Ireland.  

 

What a cost to the state the Budget deficit rises to 32% of GDP…massive…

 

My view  is that the developments today also bring us one step closer to the resolution of the fate of the EBS building society and the Irish Nationwide. Probably the best investment case in the larger Irish Financials is Irish Life,,,,BUT IT IS A QUESTION OF TIMING... Irish Life and Permanent don't have to raise fresh equity unless they splitting out the Bank per the Regulator's recent PCAR assessment two weeks ago.

They DO continue however to have a problem accessing funding at an economic cost so there is a risk that they may be tempted to do a placing to partially build their capital base or to go for a full fledged rights issue without a deal. In my view I think that they are likely to get involved in any transaction involving the EBS and Irish Nationwide and putting these institutions together would help reduce the loan to deposit ratio and so the attractiveness of the company to external investors would rise sharply not to mention the benefits of better funding costs if they are seen to be less stretched.

There are a series of events which may trigger a complete change of perception of Irish Life and Permanent with the removal of the negative valuation attributed to the bank. Once the Bank issue has been resolved , it will allow the market to focus on the EV per share of the Life Assurance business which is nearly eur9.00. At eur1.39 per share the risks now begin to swing in favour of getting involved and it is time to think about building a position albeit slowly.     

 

Aer Lingus gave up a few percent today and Ryanair was 1.5% . Grafton broke up to cross the Eur3.00 level to close at 3.05. This has been range bound for months.

 

Markets were mixed internationally with the Dow jones being down -0.5% at the European close and marginal movements across the European markets.

 

Have a good evening …

 

Liam

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Banks rally on stakebuilding rumours ahead of Lenihan rabbit trick tomorrow.

Good Afternoon,

 

Its all very amazing…the market is waiting for the biggest rabbit to be pulled out of the hat since the Government Guarantee scheme was introduced two years ago yesterday. Tomorrow Brian Lenihan is expected to stand up and make a pronouncement about the total cost of Anglo. He cant know , but he has to sound convincing… We are aware that the eyes of the financial world will again be on Ireland and that Bloomberg are sending their reporters to Dublin to copycat what CNBC did a few weeks ago ahead of the last bond auction.

 

The Banks are all up today , recouping some of their losses from yesterday. There are stories speculating about who has been behind the volume in Bank of Ireland.  I have heard one name several times.  It will be interesting to see if it is true…. Either way there has been plenty of volume for the last few weeks…Bank of Ireland gained  +5.6% whereas AIB ADR continued to strengthen after the European close. AIB closed +10% in Europ and the ADR at 5pm is +14% , the Bank of Ireland ADR is up +8.4%

 

The building materials stocks continued to struggle albeit Wolseley in the UK was up against the trend and closed +6% whereas Travis Perkins was down slightly and Grafton was flat on the day with Kingspan down just under -2%

 

Aer Lingus is rising quietly up again today +2.7% at 1.07. There was no news emerging from the Ryanair investor day today in the UK but the stock gained +1% though Air Berlin closed -2.8%

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Irish Sovereign Spreads reach news highs as the pressure mounts...

Good Afternoon ,

It continues to be a horrendous experience to even be near a screen with anything involving Ireland at the moment. Simply put the bubble of credibility has burst for not only Ireland but also the PIG countries with 10 year yield spreads over Germany hitting 457bp for Ireland , 435bp for Portugal whilst Spain maintained a strong credibility factor with spreads of only 194bp. Greece remains in a league of its own with spreads of 861bp

The squeeze became ever more inexorable with the news that Moody's had downgraded Anglo Irish's senior bonds by three notches to Baa3, just above junk whilst Anglo subordinated debt was cut to Caa1 which reflects expectations now of a haircut and full participation in the concept of risk sharing for the Anglo sub debt holders.

The market awaits Brian Lenihan statement re the governments view on the total cost of the anglo bailout. The market waits but prices for the worst.   Bob Peston the famous BBC business correspondent blogged about foreign bank exposure to Ireland. His figures were erroneous though as they include all the foreign banks operating in the IFSC so the total liabilities of Ireland look absolutely horrendous. At this stage there is a straight flight out of Ireland resulting in the huge yield spreads,.

Needless to say the problems in the sovereign debt markets directly impacted perceptions of the Irish Banks with Bank of Ireland trading below the rights issue  price and amazingly underperforming AIB whose plans to sell its M&T stake at a high price were dealt a blow with the news of the demise of the talks between Santander and M&T. It looks like AIB will have to do an institutional placing to get rid of this stake now.

Greencore had a trading statement this morning , the stock did well the continuing operations are performing well. The problem for Greencore is that the rate of re-investment in the USA has been slower than anticipated and the imminent loss of the finance director comes as a blow for those who are looking for an acceleration of acquisition activity as Greencore try to re-invest after the business portfolio re-structuring they have undertaken.

Nothing else was of consequence in Ireland today. It is all about the Sovereign issues. We wait …

Have a good evening ,

Liam

  

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Origin beats and falls , Summit material attracts CRH executives , Ryanair maintain guidance and the financials fall.

Good Afternoon ,

 

Apologies right away if my usual poor typing and resulting hilarious spelling errors which are typos (the Jesuits who taught me to spell would be horrified at my typing…)  is even worse , I have moved desks in the last couple of weeks and this has led to the slow collapse of my technology… new box for my computer as the USB keys dies , New screen (one of four from my screen bank and today the keyboard died…pays to leave sleeping dogs lie…

 

Origin enterprises announced results today , strong results , a beat and a confident outlook picture being presented. The Agri business seems to be fine , the fishmeal business likewise and the cashflow position very comfortable. I am surprised that the stock did not make progress today but there are some sceptics who expressed a view to me today that the irrepressibly bullish management may not always be right.  I think the stock is very cheap , a decent yield , a high ROCE and as Aryzta grows and particularly as Aryzta has such a stretched balance sheet now that the odds on a corporate transaction involving Aryzta and their 70% stake shorten. Meantime take the yield , enjoy the cyclical bounce and wait …

 

The Ryanair AGM was also today, Ryanair fell -2% as there was no news worth speaking of. O'Leary maintained guidance and there was no announcement of a Boeing Deal. (I am not sure that a deal now would be good news mind you especially as Boeing are clearly signalling that their business is booming. A Ryanair cave in on pricing would not be good news as the fleet ordering style has typically helped give Ryanair a pricing and cost advantage over their competition. The stock has been strong and with the special dividend ex-date already passed it is hardly a surprise that the stock moved lower. Next Wednesday Ryanair are hosting an analyst day , maybe there will be news then ?

 

Ryanair CEO mentioned that they would like to have another go at Aer Lingus which rose +1%. Having met the Department of Transport last year , I feel comfortable that their silence on the matter does not constitute agreement. It was clear that public policy is best served according to the Department by competition at Dublin airport and connectivity to a major international airport for Longhaul flights. A BA or Lufthansa or Airfrance solution might be more agreeable to the govt. In the meantime the Aer Lingus management team have definitely started to win friends and credibility amongst international investors and they probably don't need to be distracted with takeover talk.

 

With markets across the board easier today and the QE news from the fed having about an hour long impact the follow through in Ireland was in line with Europe.

 

Smurfit Kappa continued to slide quietly lower as fears re pricing in the USA spilling into Europe continue to worry investors.

 

CRH also continues to struggle and the news of further appointments at senior level by Summit Materials of executives who used to be with CRH's Oldcastle materials business is a definitie worry. Tom Hill is like the General who defected and who the troops cant help themselves but feel they need to move to be at his side. I hear also that CRH are spinning the story that they continue to strength in depth in the USA. CRH is becoming a show me story and they need a decent deal at a decent price to shift perceptions now.

 

The other building materials stocks across Europe and the UK were down as were Grafton -0.65% and Kingspan -1.1% (after its +2.5% gain yesterday)

 

The financials were weak today with Irish Life falling -7% , AIB -5% and Bank of Ireland falling -2.8% , even IFG fell -4.5% on thin volume and little news.  

 

The Oil minnows sparked into life today with Cove energy rising +4.3% and Petroceltic +9.5%. There was even a story on Tullow saying that Uganda expected the Tullow /Heritage tax dispute to be resolved soon. Tullow drifted as this news is now anticipated and Tullow has been strong lately.

 

Have a good Evening ,

 

Liam

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Bond auction ok, Markets fine , AIB clarifies margin. NYSE short covering explains part of the rally ?

Good Afternoon ,

 

The bond auction passed somewhat uneventfully though at the end of the day the yield on the long bond was 6.38%. the coverage ratio's were about the same as the previous auction and with the US market having rallied last night the backdrop for a continued rally in Ireland was all there.

 

AIB did ok as news about Santander and M&T being in discussions filtered through. Clearly the AIB stake is central to this. AIB also put out a statement highlighting that the margin on its continuing business post the Polish disposal.  Their statement says targets disclosed in AIB's announcement of 4^th August 2010 included a net interest margin ("NIM") target  of c. 180 basis  points ("bps") by 2013.   For the continuing  businesses, excluding  the cost  of the  Eligible  Liabilities Guarantee Scheme, and further  adjusted to remove NAMA  loans and income, the NIM for the six months to 30 June 2010 would have been 155 bps.  On that  same basis, average interest earning assets as at  30 June 2010 would have been  c. €109 billion and,  applying the  NIM of  155 bps  to this  figure, would  have resulted in annualised net interest income of c. €1.69 billion.  The component parts of that €1.69 billion of net interest income are estimated by management to comprise net loan income of c.  €1.56 billion, net deposit cost of c.  €120 million, funding cost of  c. €310 million  and treasury /  other income of  c. €560 million.

 

Irish Life fell-3.17% as the EBS announced that the bidders will be narrowed down within the next month. Markets thought news would probably come sooner than this.

  

Smurfit Kappa rallied early but eased back a further 1% as the company made it clear that the US pricing data did not apply to them. The market is suspicious though and will be sceptical.

 

Tullow quietly is making ground and flirting with going ovr the £13 level again.

 

The Airlines remain very much in demand with Aer Lingus trading at 1.02 and Ryanair closing at 3.90 and effectively recouping all of the special dividend within the last few days.

 

The food stocks are also continue to be reasonably well bid though light on the newsfront.

 

The construction stocks remain very much range bound , CRH hanging around just below the eur13 level whilst Grafton remains resolutely in the same range of 2.85 to 2.95.  The US housing start data was better than expected and this helped Kingspan move up +2.45% to 5.76

 

Data suggesting that the level of short interest in the NYSE at end of August was 14.4bn shares , the second highest on record possibly explains what sparked the short covering rally which has seen the market in the USA basically rally through the patchy data in September so far.

 

Volumes overall not great , Bank of Ireland remains one that the market likes , Irish Life still volatile but

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

liams Last Post : All eyes onthe auction as yiloeds rise to 6.54% , Smurfit feels pain as price hikes dont hold.

Good Afternoon ,

 

6.55 is the closing spread on the irish 10 year bond tonight ahead of the auction tomorrow. The doomsayers in the ascendancy. I could not resist looking at the relationship between public utterances by journalists and politicians about the Irish situation and the pricing of bond markets. It became clear to me last week that there is a very Irish agenda to hurt ourselves. It is true that large institutions would surely have their own view of the maths involved and would have assigned probabilities about the Irish ability to pay. It is also interesting that the problem is not an Irish one but that Irish debt is widely owned internationally. Indeed 85% of the bonds are held abroad so any talk however loose about a default is going to impact on the perceptions of the International investors.  Well on Friday CNBC covered the stories in the Irish independent (about Anglo defaulting and the other which mentioned the IMF and bang ! away went the bond yield.

 

The corporate news today was light until a story emerged about price rises in linerboard which had been announced for September not holding and indeed coming back . the story was in the influential Pulp and Paper weekly. International Paper fell -10% at one stage. It is very poor news if these prices rises do not hold and SKG which is very highly leveraged has made much about it being about to pour off cash and pay down debt., Any fears about this being not a realisable ambition will have severe consequences for the share price. It is the ultimate geared play on the cycle here. SKG fell -5.25% to 7.40 with plenty of downside potential from here if the pricing pressure continues.

 

Building related stocks did well today with Grafton and Kingspan both up over 2% , CRH is still struggling however but was up just under 1%.

 

The defensive food stock were all up as well  with Glanbia , Aryzta and Greencore all up close to 2% , Kerry has been a dcent performer so it has lagged this time.

 

The airlines stocks continue to fly…Aer Lingus +4% at eur1.oo and Ryanair up +2.7% at eur3.84 making up ground after the special dividend.

 

Lets see what tomorrow holds , all eyes on the Auction …

 

Have a good evening ,

 

Liam

 

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Irish Bond yields explode as loose talk unnerves markets , Aer Lingus seen as a bid target.

Liams Last Post

 

With Irish 10 year bonds yielding 6.41% , there is little by way of any other story to tell. It would appear to me that many politicians and commentators are engaged in a typically irish tactic of destroying whatever good work is going on to build the credibility of the state by loose lipped mentions of the IMF and defaults…I wanted to run a correlation today and ay yet o so to establish which politician or commentator has done more damage in terms of looking at the impact on the Irish CDS spread or Irish 10 year bond yield in the aftermath of their utterances in public or on twitter. What has changed from last week ? not much but a lot of loose chat and politicians referring idly to words like the IMF…

 

 Take a look at the influential Zero Hedge Blog…to see if no one is picking up this chatter…

http://www.zerohedge.com/article/risk-news-ireland-negotiating-bondholders-over-anglo-irish-default-country-prepares-call-imf

 

And the euro seemed so happy after its recent surge, that it completely forgot it is backed by an insolvent continent. Luckily, here's Ireland to remind us stuff is much, much worse than expected. According to the Irish Independent the Labour Party, Eamon Gilmore, came very close to suggesting that Ireland is considering defaulting on its debts "when he talked about the Government "negotiating'' with bondholders in Anglo Irish Bank." Additionally, the same newspaper also reported that Ireland is on the verge of calling in the IMF for a bailout, citing "a report from Barclays, one of Europe's largest banks, said Ireland may yet need financial help from the IMF or the EU if conditions got any worse. But a spokesman for Finance Minister Brian Lenihan said last night: "The Government's strategy for dealing with the economic and financial challenges has been commended by the EU Commission, the European Central Bank and many other international experts." In other words, domino #2 has at most a few more days. Net result of all this: Irish-Bund spread explode, and gold hits a new all time high of $1,282.

 

Corporate news is thin on the ground , there was a couple of interestingly timed stories about Aer Lingus being quietly put up for sale in bothe the times and the Australian newspaper. Yes the r is value in Aer Lingus , yes the management team have done a great job and yes Christophe Mueller seems to have had a very strong impact on the firm in a very short space of time. Also yes very interesting that two newspapers would both speculate about Aer Lingus at the same time…methinks no smoke without fire…

 

I spent some time in London during the week , the consensus opinion seems to be that markets will continue to be turbulent and the bulk of guys I met were mindin a defensively postured portfolio as the evidence of a slowdown in the rate of recovery in a wide variety of metrics becomes inescapable. Markets though are in general robust and holding within relatively narrow ranges.

 

Norkom was the disaster of the week in Ireland with a shock profit warning with EPS forecasts falling from 9.5c to 2.5c.

 

Tullow oil looks like it has weathered the storm in Uganda and the shareprice has settled.

 

Paddy Power which you will all know is one of my favourite stocks has come back to within buying territory now after delivering a very strong set of results. The sector got downgraded by a bulge bracket form and paddy Power has come down with it. This is an opportunity….

 

I am doing the Wexford Cycle tomorrow , 136km charity cycle . I hope the wind is behind me and it stays dry… I hope you have a fun weekend !

 

Have a good one

 

Liam

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Rics and Zew set the tone , Paddy Power drops into the Buy zone , Fed rumours

Good Afternoon ,

 

Bit of a nothing day today,  UK RIC's survey set the tone with weaker outlook for UK house prices , there was also negative news on the UK inflation front with the upper 3% limit breached for the sixth month. The BOE faces a growing split with those talking of the need for rate rises to curb inflation whilst the opposite camp are very much in favour of further stimulus in the face of very sharp public expenditure cuts. So no one is happy.

 

German investor confidence fell to its lowest level in 19 months and marked the fifth monthly decline and the lowest reading since feb 2009 according to Bloomberg.  Te decline is seen as a reaction by investors to the slowdown in the rebound and the rising fears of a double dip.

 

Market prices were a real mixed bag today in Ireland with the financials giving up ground as did CRH and Grafton though Kingspan bucked the trend with a +0.6% gain.

 

A UK broker downgraded the UK bookies so Paddy Power dropped -3% which I think presents an interesting opportunity to get on board a company with real earnings momentum.

 

Tullow in a very politically astute manoeuvre has announced that it plans to list some of its shares in Uganda and has appointed a Ugandan investment bank to advise it.  Is this enough to help push the pendulum back in its favour ? only time will tell.

 

 

As I close a colleague points out a rumour coming out of a broker in the US that the Fed is to announce $1trio asset purchase program in Nov.... $$ weakness being attributed to this, EURUSD testing 1.30....

 

Have a good evening

 

Liam

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Norkom...shock warning and fall today. Managment saying model not broken , market will wait for evidence...

Norkom :

 

I had an in depth conversation with Paul Kerley CEO and Liam Davis FD of Norkom about how the profit warning came about today. The message from them was unequivocal that the model is not broken and that they are winning more contracts than ever before. Norkom blame the profit warning on three events. An elongated sales cycle in the USA particularly characterised by a longer legal process between contract wins and sign off and they say this has led to customers having to have budgets re-approved and so a sales cycle which typically took 4 to 6 weeks now takes 4 months and a change of Government in Japan which delayed the introduction of regulations which would have had an impact on revenues. Costs are also higher as Norkom built up a cost infrastructure based on expectations of higher revenue and also there is a higher R&D expense. The cash balance being lower was explained as being the result of prepayments which were paid last year working their way out of the system and the overall impact of lower revenues. Cash is anticipate in the region of eur34m. The EBITDA outturn will be in the region of 3.m this year but that is expected to rebound towards eur7m next year as conditions normalise. The market is reeling about the falling EPS guidance for this year to 2.5c from 9.5c but the company anticipate a rebound to 5c next year. The message from the company is that the pipelines are strong and that the model is not broken and that the rate of contract wins has been accelerating. The performance of the stock today reflects the disappointment and the shock of the surprise announcement. It also probably reflects that the shareholderbase is quite concentrated so there was few willing to step into the breach today. The stock looks expensive now on a multiple base for this year but 43% of the market cap is in cash. The stock is trading on a 2011 ex cash p/e multiple of 10x. The market will look for re-assurance at the time of the results that the situation has stabilised and will be looking for evidence of that rebound in revenues. I think that it is hard to push the buy case at this point, the stock is probably at best a hold until clear evidence emerges of a rebound emerges.   

 

 

 Have a good evening

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post: Tullow causes worries , but ok news from AIB and I.Life to end the week.

Good Afternon ,

 

A wearisome day with lots of attention and speculation again on Tullow with the media reports that Uganda have withdrawn the Block 3A exploration licence in Uganda from Tullow. Lots of different views , the stock price is holding relatively firm but it is worrying and what I do know is that markets hate uncertainty and in uncertain markets stocks tend to drift. We continue to await some High impact drilling results imminently and this continues to keep people in the stock.

 

 Irish Life just announced its PCAR which looks positive, not requiring external capital in its current form. A stress test scenario will require €145m which

can be met from internal sources. A separation of the Life and the Banking businesses would require €925m of capital to be injected into the Bank which is

in line with our estimates. I.Life continue to have a predominantly funding rather than a capital problem...so nothing major new here except that there is no prwessure for them to do a rights issue unless they are doing a transactionand that of itself would be positive news.

 

In the later afternoon AIB announced that Santander had agreed to pay eur2.9bn for the 70% stake in Bank Zachodni.. Now the speculation is whether this is good news as it was rumoured that Santander might have been intersted in M&T also. The AIB ADR has risen +1% after the Dublin market closed. I think that there is nothing to be read into an announcement re Poland first. No indication that Santander are not interested in M&T.

 

Ither news today was the sensible move by Origin to put its food business with Batchelors the Origin food business was not exactly big scale so this works out for both . Origin say it will be marginally dilutive. The slight worry we have to clear up here is that the proforma sales figure for Valeo which is said to be eur 200m whereas Origin said that for the year to 31 July 2009 the Food division generated revenues of €295.3m and operating profit of €14.6m.  We had a decline in revenues in our model but this looks a tad extreme.

 

Under the terms of the transaction Origin will dispose of Origin Foods to Valeo based on an enterprise value of €78m. Origin will hold a 45 per cent equity interest in Valeo, receive cash consideration of €26m on completion and deferred consideration of €35m as a vendor loan note. The cash proceeds will initially be used to repay debt and ultimately to fund development of the Group's agri-services business. Valeo is being financed through a combination of ringfenced banking facilities, equity funding to be provided by CapVest, rolled equity and the vendor loan note from Origin.

 

The market liked the deal and Origin jumped +7.6% to eur2.70

 

And so ends a trying week for Ireland inc with irish spreads over bunds now back to a mere 5.48%  having touched 6.20% on Wednesday , this reflects that the Anglo announcement , the I.Life news and the AIB news are helping to allay the worst fears that had rolled over ireland this week.

 

First Leinster Match Tomorrow , and the first match of the newly expanded Belmont Under 9 soccer team tomorrow morning….the Autumn is truly here

 

Have a good weekend

 

Liam

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Sentiment rebounds as 'No double dip' becomes the official mantra.

Good Afternoon ,

 

After the recovery in Irish sentiment into the close last night today continued in a much more positive vein. It is hard to think that Ireland inc is front and center stage in terms of driving global market sentiment. The CNBC news team have been in Dublin all day and interviewing all and sundry about Ireland and the Anglo problem and about the prospects of an Irish default. It is a sentiment based question.I don't think that Irland has any intention of defaulting. In the '80's we were in the mire with crippling national debt and we paid our way out of it. I remember way back then that the markets were occasionally spooked by domestic irish commentators who have been calling for a default.  Today the Norwegians decided to announce that they believed that Greece would not default and as Ireland had dramatically taken the step of splitting Anglo yesterday , suddenly the pressure was off and while the noise levels remained high , Ireland saw a rally in  Bank of Ireland and a modest rally in Irish life.  Plenty of volume trading in Bank of Ireland today.

Brian Lenihan was interviewed on RTE and put his best foot forward saying that the AIB funding issue would be finalised in the next few weeks and that they had received substantial bids for their stake in Bank Zachodni.  He also said that Bank of Ireland has come out of difficulty.

 

Moving to the Building materials stocks , CRH bounced around at the eur13 level , the spark of optimism there did not last that long . Grafton and kingspan however did move up +1.5% each with a much clearer story in both cases.

 

The food stocks were better today with Greencore which had been very weak on Monday rallying +4% and Kerry which continues on its US leg of its roadshow +2.3%

 

The cyclicals were back in fashion with a vengeance and as the markets decide today to accept the view that a double dip is unlikely. I was somewhat surprised by the positive reaction to the weak tone in the beige book and the relatively weak assertions from the OECD re the slowdown being temporary.  Against this positive background Smurfit took off again and jumped nearly 2% to eur7.60.

 

Tullow continued to win back nervous investors and it closed at stg12.63 .

 

Total produce was subject of a big trade today as 27m shares crossed.   

 

Wall Street is better on the back of the employment numbers and the deficit being lower than consensus estimates. I am amused that the jobless claims data which beat expectations is based on estimates with California amongst nine states to not file proper data. Truly you have to wonder about the credibility of the data but that is a question for next time when the data gets revised….

 

Have a good evening

 

Liam

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Anglo gets split as financial system remains under pressure and CPL report inflection in recruitment in Ireland.

Good Afternoon ,

 

The day opened with a quasy sense of forboding in Ireland with a real crisis looming re the markets perception of Ireland close to turning to panic. One London based Institution talked to me about Greece exiting the Euro and the consequent knock on impact for Ireland being an almost certain exit for Ireland also.  The news of he National bank of Greece announcing that it was planning to bolster its capital just added to the pressure on Ireland. The National Bank of Greece carries its Greek sovereign bonds on its books at a discount to par and the rumour was that it was raising capital ahead of an almost certain haircut on the value of Greek bonds. The read across to Ireland was immediate and the Irish bank stocks sunk like torpedoed boats… in fairness Bank of Ireland management have been on a roadshow in the UK and made a positive impression so when we did see some buying from those who took a more positive and considered view of Ireland rather than the panic which was setting in.

 

The news of the Anglo split when it came was received positively with irish Bond spreads narrowing somewhat.The spread over bunds is as near as dammit 400bp so it is not as if we are in safe territory …

 

The Government announced its plans to split Anglo into a Funding Bank (holding the deposits) which will continue as a regulated bank and a Recovery Bank to hold the residual assets and realise them over time.

Our very initial reactions are that there are potential Negatives such as the market will have no greater certainty over the potential liability the State faces due to the capital deficit at Anglo and the creation of a State owned deposit bank competitor for remaining market participants could distort competition (something the EU wants to avoid).

On the Positive side, by isolating the liabilities/deposits from the assets, the overall residual capital requirement for Anglo Funding Bank might be reduced.  The Government might also have greater ability to backfill the capital deficit of Anglo Recovery Bank over time. Also if the depositors of Anglo are isolated from the insolvency risk of Anglo, Anglo might be able to cut its deposit rates (we suspect the EU will have some say over market shares, pricing etc that can be supported by the "Funding Bank"), which could be a positive for the Irish market.

CPL reported full year profit before tax of €5.3 million and net cash of €43.5 million in the year to June 2010 on sales of Eur189.9m. The numbers were in line with expectations as the company had issued a preclose statement in July. The dividend declared is 4.0c. The most interesting thing was the significant pick up in permanent placement fees +28% and in Temp fees wich were 14% hiher but subject to significant pricing pressure in the Healthcare sector in Ireland. CPL say they are gaining share but noted that the HSE was being very aggressive with pricing. Also talking to the FD they had strong progression in July and August but are reluctant to get too excited about it with all the negative noise in the system.

It is interesting that yet another domestic focussed company has reported genuine signs of a turnaround in Ireland … lets hope that this continues and the financial tsunami does not blow the whole place apart.

Have a good evening

Liam

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.

 

 

 

 

Liams Last Post : Ireland bond yields soar , Bank Guarantee is extended , Consumer confidence falls , Tullow redeems favour, Greencore comes under pressure

Good Afternoon ,

 

Once more into the breach … and once more the Irish government rolls over the Bank Guarantee.

 

The Minister for Finance, Mr Brian Lenihan, TD today announced that the Government guarantee for short term bank liabilities, including corporate and interbank deposits as well as debt securities would be extended from its current expiry date of 29 September to 31 December 2010.  The text of the statement says that a State guarantee will therefore be available for both short- and long-term liabilities up to the end of the year. This is an important support to the Irish banking system facilitating their access to both short- and longer-term funding to help maintain the overall stability of the banking sector and complements the broad Government Strategy to restore fully the banking system and maximise its contribution to overall economic recovery.  This modification to the Guarantee was recommended to the Minister by both the Governor of the Central Bank, the Financial Regulator and the NTMA. As is customary the Department will be liaising with the European Central Bank on this measure. An approval by the European Commission under the State aid rules needs to be secured before the guarantee can be extended. Following the Minister's meeting with Commissioner Almunia yesterday he is satisfied that Commissioner Almunia is aware of the Irish situation. It is intended that some technical details relating to the implementation of this modification will be agreed with the European Commission in coming days.
The Minister reiterated that this announcement does not affect retail deposits of up to €100,000 as these deposits continue to be guaranteed under the ordinary Deposit Guarantee Scheme and that Scheme is not time limited.

 

The Guarantee was rolled over into a market which is now pricing Irish government 10 year bonds at 6.1% yield , a whopping 386bp spread over bunds and this is a huge blow out in spreads in the past three weeks. We are right back to the levels pertaining at the end of 2008 and into early 2009. All of the 'good Work in terms of austerity measures is being verbally recognised but money talks and markets are pricing in significant risks. Nomura published today though suggesting to clients to buy Irish bonds at particularly good levels and that peripheral country fears are overdone.

 

I can't but get a sense that a crux is coming and that the government can only keep playing the hand they chose to on the fateful day at the end of September 2008 when they issued the government guarantee in the first place. The reality though is that the markets are alive to the scale of the problems and that Ireland can do what it likes to try and do all the right things and Brian Lenihan can make all the promises that the costs are manageable but clearly the market now thinks differently.

 

Meanwhile AIB are staying very quiet in the background …. We wait ever patiently for news about the Bank Zachodni disposal and a disposal of the M&T stake and then we will await the terms of the conversion of the Preference shares and we wonder how much dilution of existing shareholders will take place over the next few months…For the life of me I cannot see any rationale for taking the risk associated with all these moving parts at this juncture.

Meanwhile Bank of Ireland has announced plans to exchange some of its subordinated bonds for new bonds, in an effort to strengthen its capital position further.The bank is planning to exchange bonds worth 400 million Canadian dollars (€301m), which are due for repayment in 2015, for new bonds repayable in 2018. The bank is offering a coupon, or interest rate, of 8.5% on the new notes, compared with 3.8% on the existing debt

Against the background of enormous negative news about the scale of Irelands debt problems it is no surprise perhaps that consumer confidence fell to 61.4 from 66.2 for August.

Elsewhere the Obama infrastructure announcement that sparked the rally in the Building material stocks fizzled out rather quickly and is now seen as a piece of electioneering already. No details of how the plan will be funded and no time line for bringing the legislation through congress. As it is the Roadbuilding legislation introduced last year which was supposed to be provide a major stimulus for road building projects has not really worked with on ly 41% of funds having been appropriated and many projects abandoned due to lack of state funding availability.   What it did show however is that investors perception of CRH at this point seems to have mellowed and the market at these prives is prepared to look more optimistically at the prospect of any positive news.   

Volumes overall were very light in Dublin as the Bond yield story stole the show and kept many on the sidelines.

 

Aer Lingus traffic stats contained no surprises .

 

Greencore came under pressure today with a seller who hit the price down towards the Euro level. The stock later recovered. This has truly been a frustrating company to have been involved with.  The glass ceiling of Eur1.35 which marks the level of the placing done by RBS on behalf of themselves while realising the Carroll stake has proven to be a rea barrier to progress , briefly the sharebroke into the 1.40's this summer but since the results and the resignation of the FD , the market has come to realise that the much vaunted US strategy is a long way off being successful and with the departure of one of the designers and proponents of this strategy , the market is left looking at a company with a high yield but which is not cheap relative to its UK convenience food sector peers and the share price has been drifting steadily as the disappointment gathers pace. And there are more exciting plays in the Irish food sector. I would Instance Kerry and would happily recommend switching into Kerry which has really turned around its own its own performance.

 

Tullow seems to have weathered the storm in Uganda with reuters carrying a report that the Ugandan government would look favourably on a Tullow application for a production licence at the Kingfisher Oil field. The mood music has changed considerably…maybe this was what was driving the recovery in the Tullow share price over the last few days rather than bid spec. Bid spec would surely have been highly unlikely if Tullow was about to lose assets…    

Elan also was in the news today when the company put out a statement saying that the company is "well positioned" to maintain growth. Kelly Martin the CEO said "The bottom line is that Elan remains well positioned to maintain growth, achieve profitability, advance both our science and technology, and provide continuous innovation across both our key businesses," Elan was Monday granted an interim injunction until Sept. 13 in the Irish High Court against what it called "two dissident directors of the board," preventing them from establishing a parallel investigation into concerns about corporate governance. The two directors, Vaughn Bryson and Jack Schuler, who are also shareholders in the company, are attempting to engage a firm of lawyers to look into corporate governance issues, after they had made a complaint at a meeting of the audit committee in May.  Another review is being conducted by the board into allegations by other activist shareholders, and is expected to conclude on Sept. 15.  

 

Have a good evening

 

Liam

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

Disclaimer www.merrion-capital.com/disclaimer.html

Merrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.