Liams Last Post : Bond yields fall sharply on EU G5 statement and funding stories, BOI and Glanbia IMS pleasing, CRH explains itself

Good Afternoon ,

 

Well Ireland certainly has had a very interesting week and been in the news all week , for all the wrong reasons but there again much of those reasons were just to do with market prices and the snowball effect of rising Bond yields on the perception of the country and the ability of the state to access funds as well as the Irish Financials to do likewise.

 

Today helped by a statement made by the G5 Finance ministers which clarified that the German proposals on Private participation in future bailouts helped turn the tide on Irish bond yields which fell like a stone over the last week to hit 9% last night.  Yields rallied sharply today to close at 8.12% , a mere 560bp spread over Germany.

 

Bank of Ireland issued an IMS today , the initial reaction this morning was weak but that was a market wide issue on the back of a weak Chinese market close last night. The guidance was positive with improving operating profitability underlying and net interest margin which was also a tad better. It would appear that there was some surprise from international investors when Bank of Ireland noted that they had seen outflows from ratings sensitive deposits. This is hardly surprising .Personally I was comforted by the statement that retail deposits were stable. This is an area where we detected a degree of alarm on the part of retail clients over the last few days.

 

Glanbia re-iteration of their 20% growth guidance was pleasing today also.

 

CRH held an investor day in London. It would appear that little substantive and new emerged from it. n the US side, there continues to be a high level of uncertainty as to what will happen in 2011.  The european business highlight the importance of vertical integration with poland being the poster child for the crh model. Entering the country last but are now the only fully integrated company are now the most profitable. Albert sees a similiar economic development path for the ukraine. On the materials side, they want to keep exposure to solid mature economies in the netherlands, finland and switzerland while planning for emerging markets to come on stream later. Sees a return to mid teen ebit margins.

 

For products and distribution, the market for res and non res continues to shift to rmi from new build in europe. The geographic exposure for products is quite broad with no one country exceeding 24% of sales with the netherlands making up that percentage. Distribution has shifted some of the focus away from the netherlands to switzerland and, as a result of the bauking transaction,northern germany. Managing Director for the division seems to have a clear framework of where crh would like to get to, targetting some of the larger economies that have been avoided to an extent before. Would expect more development activity in south germany. On a medium term basis ebit margins are seen up over 50% from 08\09 levels but it will be slow given europes macro environment.

 

On emerging markets, its the most open that I have seen the company be about the space. They will stick with their historic way of entering a region ie. Buying a reserve backed asset, capex to bring it up a level and then integrate their plan for excellence. Sees huge growth in cement demand proxy for construction in india especially over the next 20 years. China is seen as being more volatile but longer term returning to current levels. The chinese market itself is difficult as pricing is very low with buildings materials seen as being underappreciated and a highly fragmented market. Crh is only seeing small single digit returns in china and considers itself best in class, so a difficult market. The yatai stake can be increased in 2013 which I think will happen.

 

So a busy enough day for news in Ireland culminating this afternoon with a reuters report saying that Ireland is in talks to Receive

Emergency Funding From EU.  Eurozone sources say assistance to Ireland does not foresee any debt restructuring or 'haircuts' for bond holders.

 

Not good news for taxpayers… but the market is taking it as good news and so the financials continued to rally into the close.

 

Have a good weekend

 

Liam

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

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