Liams Last Post : Bailout application triggers political turmoil , Financials tanking and Portugal moves into the crosshairs..

Good afternoon ,

 

Well it is afternoon and it is cold and dark and the news re the application by Ireland to be bailed out has been received in progressively more bearish manner as the day wore on. The cold fury of the population is now becoming apparent and the petty political muppetry is a sight to behold…

 

So what was achieved today ? a panic in the Irish financials with Bank of Ireland down -19% , Irish Life which had run up ahead of the bailout falling like a stone to 91c a fall of -25% and AIB which I don't understand only down -6%. Maybe the market was not watching the same comments from Brian Lenihan last night when he talked about re-assessing the capital requirements of the banks and he specifically mentioned AIB in the context of it having a small residual private shareholding. I thought that he was effectively giving the market the nod re its imminent nationalisation when he suggested that if it needs more Capital then it 'might have implications for the residual shareholders…'

 

Merrion launched a detailed note on CRH ,  a strong fundamental piece of work rolling out our forecasts to 2013. In the note we look at the reliance f CRH on the USA and individually look at the states where CRH operate from a budgetary and funding perspective and also from a demographic perspective. The conclusion is that CRH does find itself operating in states where the finances are not in great shape and the demographics are likewise unfavourable.  The market has also talked at length about the haemorrage of management from CRH's Oldcastle materials business to Summit Materials to follow Tom Hill. David has put together an powerful organogram which certainly highlights the challenge facing CRH. CRH has lost significant numbers of well placed senior and mid management in its organisation and this may explain why it is so quiet except for announcements of disposals such as the insulation business to Kingspan and today a small business for eur37m

 

The overall conclusion of the note is a HOLD recommendation. The Hold is based on a view that the stock after the recent rally is now looking fully valued relative to history and its peers and needs upgrades to keep going higher. The conclusion of the state by state analysis and our assessment of Europe is that there is little chance of upside surprise in the near term so hence the Hold.

 

Origin Enterprises had a re-assuring statement today which was kind of overlooked and Paddy Power did not react to the news that the Irish thoroughbred breeders association is looking for a 2% turnover tax. This is worrying as the timing of the calls for a higher tax may be met receptively now as the Government looks for all avenues to raise revenue. Paddy Power do anticipate a betting tax being introduced in Ireland.  When I spoke with Jack Massey last week he mentioned a 1% turnover tax. This would impact Paddy Power to the tune of 5m of EBIT and cost 9c of earnings.  This has not been factored into many brokers forecasts at this point as the tax has not been actually announced. Concern about this could and probably will weigh on Paddy Power for the next few weeks until we get some degree of certainty.

 

 

The bond markets were not pacified with Irish yields remaining above 8% yields and the portuguese now saying as loudly and about as credibly as the Brians did a few weeks ago that Ireland does not need a bailout. Even the spanish were heared practicing their No bailout refrain in the background.

 

And of course Hats off to Jackie Healy Rae and Michael Lowry for behaving lioek typical Irish Politicians and the Greens for actually behaving like Turkeys and voting on Saturday to seek to dissolve the government. All this before the Budget which raises the spectre of it not being passed. Yes a wonderful market outlook and definitely cedes all the negotiating power to the IMF and away from Dail Eireann. Well Done.

 

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.