Liams Last Post : Markets volatile and price levels attractive again for NON Japan related stocks.

Good Afternoon ,

 

What a week for markets with Libya , Bahrain , Fukushima and the aftermath of the Tsunami and Earthqualkes , not very helpful for fundamental analysis as news events triggered rigors in the markets and sudden movements which were enough to unnerve even the bulls who wanted to buy cheap stocks.

 

The Irish financials are trading under pressure as they face stress tests and pressure to de-gear without any obvious route to achieve the goals they have been set.

 

We looked at C&C as a potential short… I have to say I think that there is merit on taking a look at this one with the host of sharply higher costs of inputs , packaging , distribution and the advent of a major competitor prompting promotions and price cutting. Gotta think there a negative surprise potential here and the fac that the stock has been relatively strong recently aids the short opportunity.

 

St.Paddys day saw a big relief rally which lifted CRH to the resistance level ( I think it will drift from here) and a sharp rally in Kingspan whilst grafton was ignored. Staying Loyal to the Grafton theme , this one is now obviously lagging and should be bought.

 

RUBIS reported numbers which we believe were a bit disappointing. It would be great to be pushing this one as our first pan Euro BUY but simply DCC looks cheaper and earns higher returns not to mention underperforming RUBIS at this point. Buy DCC.

 

 Cheltenham rumbles on with record crowds , a successful run for the Irish and Favourites running at about average levels wont do Paddy Power any harm.

 

The Libyan No fly zone helped Oil proces fall and the airlines to briefly rise but Ryanair continues to drift.Aer Lingus looks cheap here and even with the one off exceptionals which I don't like , the recent sharp pullbakc in the stock prices a lot of that news in..

 

Have a Good Weekend and that the Rubgy is a good contest…. (Hope the wheels fall off the chariot… J )

 

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 : Japan meltdown post Tsunami sweeps all before it ! Irish Companies continues to score highly with results.

Good Afternoon ,

 

Last Friday Morning when I came into work , I have to say I stood gobsmacked as the TV screens which were already on showing the Tsunami sweep all before it. Who was to know that that the fall out of this would be as catastrophic as it would appear to be.

 

In my naivety I had wondered when the last great Tsunami hit in 2007 how so many people got killed, I never saw as much destruction as now. So it would seem this is yet another massive Black Swan event which has taken place. There seems to be nothing but black swans around these days. 

 

ICG had results this morning as well as Aryzta , Both did ok no surprises , both have challenges in terms of rising costs.

 

Aryzta said  operating margin is likely to improve from in H2 (12.1% H1), driven by increased volumes in Europe in the run up to the summer months. They expect that double digit price increases will be necessary to offset raw material inflation. These price increases will be negotiated and phased in over the next few months and are not expected to be realised fully until FY12. Increases in the order of 5% will be seen in H2 11.

In comparison to the extreme input cost volatility experienced in 07/08, IAWS saw no notable impact on volumes. Price increases of c. 10% were absorbed fully by customers and consumers. They expect similar situation for 2011.  Volumes were relatively flat for H1 and management anticipate growth in H2 reflecting continued improvements in economic and customer/consumer sentiment.  Aryzta noted that they experienced a double digit fall in Ireland in H1 with somewhat less recorded in the UK.  They confirmed that they have no plans to reduce their stake in Origin and remain very satisfied with their progress.  Management stated that they believe that their current momentum should leave them well positioned to achieve their longer term targets set out in 2008 - EPS 400c by 2013 and ROI 15%+ by 2015

 

 

ICG is fascinating business, a almost debt free , highly cash generative , lowly valued , asset backed business which has performed more than creditably through the worst of the downturn. The split of their business is 66% car and passenger now vs 60% in 2009. Freight has been declining as %.  30% down from 35% in 2009.

Volumes +11% in market flat overall due to a competitor capacity removal. This is a freight volume play not rate and company is looking for fuel surcharge. Fuel 21% of costs up from 16% in 2009.  DFDSs had added capacity but recently announced pulling 3 ships off routes but Seatruck adding a ship and PO  upgraded their ship which gives only a net 1.5 ship benefit to route.  Fuel costs will increase by eur 14m if prices stays at these levels. ICG don't hedge. Reason for not hedging is they would have to disclose it. Would impact market pricing , could get it wrong.  Dividend maintained is a signal that the company is managing expectations and pricing for customers. Interesting to note that Pension deficit reduced by higher bond yields.  Re-structuring all done , Reduced costs by 31% with outsourcing over the ast four years.  CEO mad a few quips about preferring to be in a position to not have to answer analysts questions… fuel for the MBO fans and definitely one for the takeopve candidate watch list if you have not got it on your radar already…

 

Markets absorbed the constant stream of news about Japan today and with costs of insurance estimated in the eur34bn range this hit the insurers. Switzerland announced a suspension of its Nuclear power plant programme and Germany also put plans to extend the life of German Nuclear reactors on hold.

 

The news that Saudi Arabia had sent troops into Bahrain to quell protests added an unwelcome dimension to the afternoon.

 

Not much good news except in irish company reporting season continuing with no negative surprises in any of the non financials who reported thus far.

 

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 : Resylts season in full swing , CRH upgrade , Kingspan tweaking , Glanbia ok , Fyffes ok, Irish Life disappoints , Grafton tomorrow and Ireland Beat England

Good afternoon,

 

Ireland beat England at cricket …..what a result…biggest scalp in the history of Irish Cricket ! I can say that I managed to be there to see the last 12 runs…. I nearly missed it as I was so excited by the prospects of Grafton reporting tomorrow…..

 

Ireland retreats -0.75% , , the financials -2.7% as Irish Life fell -6%. On the back of the combination of news that it is out of the race to buy the EBS, that its mortgage book arrears are continuing to rise and that the exodus of Commercial Deposits continues. The news that they are out of the race for the EBS offsets the potential double bonus which the market had considered with the recent news of them being successful in acquiring the Irish Nationwide Deposit book. The loan to deposit ratio is 200% proforma post the INBS deposit acquisition.

 

We are making a number of changes to our CRH model reflecting yesterday's results and subsequent conference call. Our forecasts for 2011 now assume revenue of €17.549 billion and a bottom line basic EPS of 87.7c (old: 81.2c) For 2012, we forecast a basic EPS of €1.167 (old: €1.095) While our concerns over the US remain and were highlighted during the conference call by CRH management who freely admit that it is simply too early to get a clear gauge on infrastructure projects for H2 2011, European operations, particularly distribution remain attractive. Our forecast increase to a Group operating profit in 2011 of €955m (old: €900m) is principally driven by increased expectations for Europe Materials and Europe Distribution, both of which have benefitted from increased acquisition spend in 2010 and Distribution, in particular, which has increased its footstep in to Germany and will likely continue to look for acquisitions in what has been Europe's top performing economy. The Products segments in both Europe and the US remain weak and we are tapering our forecasts for both reflecting a continued lag in spending in their end markets while pricing pressures remain for each. Overall, despite the upgrades to our forecasts, we believe that current share price is unsupportive from a valuation standpoint, trading at 18x 2011 earnings, falling to 14x our 2012 forecasts. We believe the price is all ready pricing in the recovery in earnings while there remains a risk overhang concerning the sustainability of the construction recovery in developed markets in the absence of government stimuli.

 

We are making a number of changes to our Kingspan model reflecting their 2010 FY results and subsequent conference call. We now anticipate that the company will report revenue for 2011 amounting to €1.455 billion (+22% yoy) or  7.6% higher yoy excluding the CRH acquisition. We are forecasting a revenue contribution from the acquired CIE businesses of €170m, broadly in line with guidance from Kingspan management and our prior estimate. The driving force behind the increased revenue forecasts is the pass through of increasing input costs, primarily steel and chemical costs which have been rising on the back of supply constraints in the case of chemicals and alongside the rally in metallic commodities in the case of steel. We are revising lower our operating margin forecast of the group to 5.1% while increasing our estimates for Kingspan's interest cost to reflect the acquisition costs of CRH's insulation businesses. These changes lead to a basic EPS in 2011 of 31.66c (old: 32.06c) and a 2012 basic EPS of 49.1c (old: 48.4c). Kingspan have guided for an EBIT contribution of €12m from the acquired CRH businesses in 2012 which is achievable as the businesses recover. We believe that Kingspan will be able to pass on the increased raw material costs and note that management view this is as an absolute priority for the year. We would also note that this approach has been taken by a number of peers which would have higher steel inputs than Kingspan for their products, making the company's case for price rises even stronger. Overall, while we like the long term prospects of Kingspan and view the acquisition of the CIE business from CRH as an opportune gateway in to Western European countries where penetration levels for Kingspan insulation products are low, we feel that current valuation levels are stretched and are likely to provide a better entry point, particularly in the event of continued elevated energy prices. With the share price trading at 22x our 2011 EPS forecasts, falling to 14x our 2012 estimates, we remain neutral on the company and continue to have a Hold rating on Kingspan .

 

Glanbia  Continued converging consumer themes supported the positive performance of Glanbia – growing dairy consumption supported by rise of middle class in emerging markets (particularly in Asia), promotion of clean label and natural ingredients, teamed with aging western populations continues to play to dairy space and the growing endorsement of performance nutrition and consumer focus on health, wellness and nutrition aided growth in the Global Nutritional division. Revenue growth of 21.4% supported by increases in volume, price and currency movements (predominately USD) attributing 7.3%, 11.0% and 3.1% respectively. Global Nutritionals outpaced market organic growth of 6 – 8%, increasing by c. 15-20% (volumes experiencing mid teen growth and prices relatively stable).

EBITA was driven by the recovery of pricing for Irish Dairy Ingredients, cost savings in Dairy Ireland and the volume growth in Global Nutritionals mentioned above. Pressures on EBITA included higher milk costs in the US and price competition in Consumer Products in Ireland, themes which we expect to see continuing in 2011. EBITA was also affected by high operating costs in US Cheese and Global Nutritionals, which was driven by increased investment in resources. The Group has leading positions in Dairy Ireland (30% share of Irish output, with potential growth through export post European quota changes), US Cheese (10% of US cheddar output), Whey solutions (leading global producer), Micronutrients and Performance Nutrition (14% share of the highly fragmented Global Nutrition industry), which provide platforms for growth going forward. Global Nutritional continues to be a high growth high margin business  and a major driver of growth for the group. Integration of BSN is already underway and will continue to be the focus for 2011. The fragmented nature of the business may provide good opportunities for growth in the medium term.

 

 

 

 

 

 

___________________________________________

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.