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

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