Liams Last Post : Dow pushes through 12,000 , Finance Bill passes stage 2 , Ryanair rallies , CRH outperforms..

Good Afternoon ,

 

Risk ON theme continues with Ireland participating.  CRH has been a very strong performer against our expectations. There is a certain element of Déjà vu in this as it was also a strong performer this time last year. CRH was recently upgraded by one of the Bulge bracket brokers and is being pushed very aggressively by a UK broker called Aviate. In fairness they have been successful in getting it moving. From our point of view we remain as concerned as ever about the fundamentals and the positioning of the company in states which have poor budgetary positions and demographics and with the recent uncertainty about Highway funding not resolved our concerns have not gone away. On a valuation perspective CRH is now trading at a significant premium to its European peers and has broken out on a relative performance basis. The stock does look over bought in the short term and may be susceptible to a pullback. I personally think that I would prefer to be positioned in Grafton or St.Gobain rather than CRH and would use the rally to begin lightening positions further. Vulcan and Martin Marietta will be reporting next week and they are likely to be bullish in their stance which will maintain the upward pressure on CRH in the near term.

 

This afternoon I discovered some interesting commentary from Jim Haughey the Chief economist at Reed Construction data suggesting that the US non Residential environment is improving. This would be big news for Kingspan particularly so worth noting the real sentiment shift driven by the American Architects Work on the boards index which showed a big jump in December.

 

The AIA index of design work underway moved up to 54 in December, after being stuck near the 50 level for about six months. A reading over 50 signals a rise in construction starts ahead. There have been some spot rises in commercial starts since last spring but have been sustained. Commercial construction starts have stabilized well above the cyclical low point in June 2009. The starts trend was clearly upward from the beginning to the end of 2010. Starts are refilling the pipeline and will lead to slow growth in spending at commercial jobsites beginning around yearend.

 

The economy is awash in liquidity so large lenders are beginning to loosen requirements for equity participation which makes loans for large projects more available. Funds continue to flow into real estate investment trusts. However, most small projects are typically funded by loans from regional and local banks which have not loosened their lending standards and not likely to do so for many months. Hundreds of smaller banks have too many defaulted mortgages for commercial property and are struggling to reduce their exposure to real estate.

 

The build vs. buy indicator still points at buy for real estate investors. Asset prices of existing building have risen significantly from the cyclical low level and continue to improve. This metric is progressively moving to the build side as the value of existing buildings rises and improving occupancy and rental rates boost net operating income prospects. However, this is a long process with the indicator tilting to build market by market. The process will take 2-3 years in the weakest markets but has already happened in a few markets.

 

In terms of Ideas , I have been pushing thee BUY RYANAIR theme not only as a trade into the numbers but looking ahead longer term. All I can say is that the market is nervous about Fuel and guidance with many waiting to see the results and hear the guidance for the coming year. I think that Ryanair are conservative in their guidance and from all reports they have been as usual downplaying expectations so I think there is low risk of a negative surprise.

 

I have mentioned that Circle Oil is an interesting stock with a previously 'interesting' pedigree. Call me for more… I note this one is now starting to move after the Moroccan drilling news released on Monday. One to watch in a sector with many opportunities this year.

 

The Dow continues its liquidity driven rally and pushes today through the 12,000 level for the first time since June 2008… on the same day that Fianna Fail elect Michael Martin as new leader and the Draconian Irish Finance Bill successfully navigates way through the second stage of the Dail process. 

 

Have a good evening ,

 

Liam

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

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