Good Afternoon ,
Interesting week in more ways than one , We had a bunch of company meetings m, some interesting research reports published and finally it would appear that the market is catching up with our vie on CRH with the stock being downgraded to sell at Citi.
We initiated on Ryanair with Gerard as the analyst, cautious view given our view of the prospects for weak consumer activity in Ireland , Spain and UK. We met Ryanair today and they ar clearly bullish on the opportunities to raise yields. 12% yield growth is their best estimate for the year. They have been cutting down on promotions and increasing base fares and reduced the number of available seats as well as introducing the Volcanic ash charge plus with more routes moving into a more mature and more profitable phase coupled with more aggressive culling of low profitability routes they are comfortable with the guidance at this point. HM also pointed out that they have no competition on 40% of their routes. At he end of the day the Ryanair strategy is clear. It would appear that the problem for the market is how analysts interpret the Ryanair story and where guidance or consensus gets to relative to what the company is saying and clearly there can be disconnects at times. The History of Ryanair yearly first guidance is that it is cautious and it gets revised typically upwards through the year,. They got themselves caught out though a few years ago so hence the confusion at times. I believe it is in a range , I think there are risks to the 2013 earnings consensus and the stock is not outstandingly cheap but it has momentum behind it.
Our new Resource analyst Muna Muleya initiated on Kenmare resources. Time to learn about Ilmenite and Zircon , yes two materials that go into pretty much everything that we use every day and whose prices are behaving very strongly so there is considerable positive momentum behind Kenmare right now. A simple story of a large deposit in Mozambique , a very efficient recovery process at low cost , a shortage of supply of Ilmenite and Zircon now and prices going up. Simply a buy. We have a price target of 63p which is about 40% upside from here. Other brokers published on the stock this week also with similar price targets but slightly differing assumptions. We could take the credit for the 7% rise in the price of Kenmare but that would be a stretch , some broker meetings and pricing news from a peer also helped , good story. An interesting sector the irish Exploration and resources sector...but you know i have been saying this all year.
The Irish market has been in a tight range this week until it spiked out of the zone today led by a rebound in CRH and a continued recovery in Ryanair after a shaky initial interpretation of its numbers.
We also Met Paddy Power in the form of Jack Massey who had to abandon his car in Donnybrook and run in the rain to our office as Obama mania had closed all the roads nearby. The paddy power story rolls on with seemingly unstoppable momentum. I am a big fan and continue to be but ....I suggest that the stock is clearly overbought right now and should pause for breath. I think there is a trade in a switch into William Hill from here. But its only a trade . My conviction behind Paddy Power remains as bullish as ever but it is not so cheap now.
Aer Lingus continues to intrigue and it would appear to be a clear buy at these levels with Rya definitely interested , the valuation is cheap and the only question is whether or how the government changes its mind or engineers a solution. I do realise that the Government stated policy is to not sell to Ryanair until Hell freezes over but its not beyond the bounds of possibility that some solution will be found. Meanwhile Aerl is hanging around at these levels buffeted by the odd gust of takeover talk but also impacted by the market realising that another round of cost cutting is required and the Pension issue is not dead. A value trap but it will be unlocked one day.
And next week we look to the little matter of the DCC investor day , this stock is behaving like a pig , it is cheap too. We met DCC also and there seems to be little to worry about in terms of their performance , a reassuring performance in London may trigger a rebound in this stock. I cant quite explain the disappointing performance except for market boredom waiting for a big acquisition or a corporate re-structuring.
Im off for the weekend. Leinster are taking the Heinken trophy to Munster to introduce it to the Magners Trophy in Thomond park. I will be there.
Have a great weekend
Liam
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