Wednesday 29th February 2012
Market View: Investors await the European equities are trading broadly flat this morning with investors shrugging off Ireland’s decision to hold
results of the ECB's second 3 year a referendum on Europe’s new fiscal compact. When the announcement was made yesterday markets
LTRO initially weakened before discounting that the referendum was unlikely to derail the ratification process as
only 12 of 17 countries within the Eurozone required to ratify the legislation to bring it into effect. Despite the
market’s ambivalence towards the announcement it will create plenty of room for uncertainty as the vote is
Glanbia: Strong FY11, outlook
unlikely to be completed before the summer. Moreover, given Ireland’s prior history of no votes on Euro-
pean legislation ratification is by no means a certainty which will trouble Germany and France which have
held up Ireland as the model of reform and austerity during the crisis. Elsewhere in Europe, the result of the
CRH: Peer strength is due to ECB’s second 3 year LTRO will be announced at 10:15 this morning. Consensus on the size of the take up
emerging market exposure has been scaled back ahead of the event with €500bn now expected against last month’s estimates of close
to €1tn. The LTRO last time around sparked a tightening in elevated sovereign debt yields and therefore the
Airlines sector: IAG reports solid results of today’s event are crucial to determine if Europe’s banks have progressed in the interim. In the US,
FY11 but cautious on guidance at 13:30 the second reading of US Q4 GDP is released with no change expected while at 14:45 the Chicago
PMI is expected to rise from 60.2 to 61.0.
Standard Chartered: Another
strong performance in FY11 Glanbia - Buy Previous Close €5.32 Target €5.75
Glanbia released a very strong set of FY11 numbers this morning, however it sees the environment in 2012
is more challenging. The company reported revenue of €2.67bn, which was 3.5% ahead of our estimates
IRISH PAPERS TODAY (+23% lfl) while adjusted earnings per share came in at 46.3c, 4.7% ahead of our estimates (+22% lfl). The
Cheese and Global Nutritionals division reported EBITA pre exceptionals of €122m, which was up 17% lfl
however the company has experienced some margin compression particularly relative to H1 (down 1.2%)
Permanent TSB to allow €1.4bn for due to high whey prices. The company, which is the world’s largest producer of whey isolate should see
loan arrears pricing ease in 2012 however as greater capacity comes on stream and as price increases are passed
through. Dairy Ireland reported €57.9m up 21% lfl, this was driven by strong demand and pricing in Dairy
(The Irish Times)
Ingredients. Despite a softening in milk pricing relative to 2011 the group expects the performance in 2012
to be broadly in line with 2011. In Consumer Products, the performance was weighed down by continued
Irish vote is new risk in euro crisis weakness in the Irish macroeconomic environment and no significant change in performance is expected in
(The Irish Independent) 2012. Agribusiness saw margins marginally down but demand for farm inputs should underpin a solid per-
formance in 2012. Its JV & Associates arm, the group reported EBITA pre exceptional of €25m up 17% lfl
CRH sees value in emerging mar- driven by improving volumes in cheese and demand for condensed milk in Nigeria. The group’s ROCE in-
kets creased by 20 basis points in the period to 12.7% while net debt/EBITDA was flat yoy at 2.1x. The fact the
company is well within its debt covenants should facilitate it to make further acquisitions in a sports nutri-
(The Irish Times)
tional market worth c.€4.6bn annually and which is expected to grow at a compounded annual rate of 6.2%
over the next four years. In its outlook statement CEO John Maloney stated he expects the ‘operating envi-
INTERNATIONAL PAPERS TODAY ronment in 2012 to be more challenging than in recent years, our guidance is for 5-7% in adjusted earnings
per share on a constant currency basis’. Overall this was a solid update from Glanbia this morning and we
maintain our view that the company is undervalued trading on P/E of 11.5x significantly below its peers in
GM to buy 7% stake in France’s the nutritional space and we reiterate our Buy rating and €5.75 share price target. An agreement on Dairy
Peugeot processing expansion is expected by the end of H1 and if mooted corporate restructuring materialises, there
(Financial Times) is upside risk to our share price target. This restructuring would serve to accentuate in the eyes of investors
both the earnings power and potential of the global nutritionals business and in turn could facilitate multiple
US cuts Iran cash pipeline expansion.
(Wall Street Journal)
CRH - Neutral Previous Close €15.79 Target €15.00
Equities boosted by prospect of Holcim, the Swiss-based cement manufacturing peer of CRH, this morning issues a solid set of FY11 num-
ECB loans bers. The company reported adjusted EPS of CHF2.68 (market expectations at CHF2.45) from an EBITDA
of CHF3.96bn, ahead of consensus of CHF3.85bn and revenue of CHF20.7bn (CHF20.4bn forecast). The
read through for CRH is in management’s forward guidance, where it is looking to achieve organic operating
EBITDA growth through FY12. This is stronger than CRH’s guidance yesterday where the company only
noted that it expects to “generate like-for-like revenue growth in 2012”. On a geographic basis, where CRH
is expecting marked differences in operating conditions in specific countries across Europe, Holcim is guid-
ing stable demand for its readymix, cement and related products. That said, where CRH generates c.50% of
profits from Europe, Holcim’s global footprint means that it only relies on Europe for 22% of profits. As with
peers and in line with CRH, Holcim is expecting to generate higher volumes in North America. Where the
company is looking for increasing demand to drive EBITDA growth, however, is in Latin America (21% of
profits) and Asia Pacific (40% of profits), highlighting the need for exposure to these geographies to out-
perform in current economic conditions. The lack of exposure to these markets is one of the reasons we
believe CRH does not deserve to trade a premium to its peers, the others being the company’s degree of
exposure to the US Infrastructure sector, its reliance on Europe for over 50% of profit and lack of earnings
enhancing acquisitions over the past three years. Trading at parity would imply a share price in the €14.15
to €15.00 range and we would look to take profit on any strength.
Wednesday 21st October 2009
Airlines sector: IAG reports solid FY11 but cautious on guidance
IAG (British Airways/Iberia) reported solid FY11 numbers this morning. A 10% increase in revenue to
€16.3bn (in line with expectations) coupled with its cost management programme (operating costs ex-fuel
only up 1.1% in the year) drove a doubling of operating profit to €485m, slightly behind forecasts of €493m.
As expected, fuel costs were up 29.7% in the year. As a pan-continental flag carrier, there is limited read
through for Ryanair and Aer Lingus. That said, IAG has guided a c.€1bn increase in fuel costs in FY12,
which in relative terms is a similar up tick (19%) to that guided by Aer Lingus in its numbers yesterday
(+17%). It notes that demand in London remains strong, driven by long haul premium traffic on North Amer-
ica routes (no read through for Ryanair but 22% of Aer Lingus’s FY11 revenue was generated from it US
long haul routes). The company sees weakness in underlying demand growth in Europe, especially its
Spanish network, although this is in part due to “the highly competitive marketplace with no-frills airlines”,
i.e. Ryanair. Interestingly, management notes that past experience in other host cities suggests that de-
mand will be dampened over the period of the Olympic games this summer. We presume that hiked costs in
the city and reduced accommodation availability puts off general tourist in-flow during the games. However,
the Olympics will not stop the general British public taking their summer holidays, implying little impact for
both Aer Lingus and Ryanair.
Standard Chartered: Another strong performance in FY11
Standard Chartered released FY11 numbers overnight which were ahead of market expectations. The UK’s
second largest bank by market value posted net income of $4.85bn v $4.75bn expected. The strong per-
formance was driven by in its corporate and consumer banking in rapidly growing Asian markets which also
has had a strong start to 2012. On the cost side the CIR ratio came in at 56.5% while NIM came in at 2.3%.
On capital the Bank posted core tier 1 capital of 11.8% which was broadly in line with market expectations.
In its outlook statement management stated it was on track to deliver double digit EPS growth in the me-
dium term however it did seek to temper expectations with regard to its potential return on equity stating that
it may be under expectations due to tightened regulations and low interest rates. Standard Chartered trades
on 1.4x book value and yields a dividend of 3.1%.
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