Monday, August 23, 2010

Markets News Monday: Kingspan reports return to growth

Shares in building materials group Kingspan rose today more than 9% after it announced its first increase in operating profits in three years. It also said it will resume paying dividends.

Kingspan (Buy, Closing Price €5.08); Growth / dividend back on the agenda: Goodbody analyst, Robert Eason, commented -- "Kingspan has reported EBIT of €33.1m (+9% yoy) for the first half. This is significantly ahead of forecasts of €28m and management’s guidance in May for a decline of 'approximately 10%'. The variance reflects better top-line across all divisions (mainly outside the UK), which translated into stronger profits, particularly in insulation. EPS is further ahead due to a lower effective tax charge (16.5% versus 19%). The key takeaway from the results is the strong momentum given that sales were down 6% in Jan-Apr, but finished the period up 1.1% (-4% lfl). Management note that June was particularly strong. Order intake in most regions has also “trended positively throughout the period, and was substantially up in the Insulated Panel businesses globally” (order intake +15% UK and +14% in CEMEI). As a result, underlying profits grew for the first time in three years.

While management recognises the more cautious macro indicators recently, this has not been evident in either activity levels or pipelines ('order books across the business are as firm as they’ve been for some time' with order intake continuing to 'outpace 2009 albeit at a slower rate' than H1). Furthermore, it indicates that the improvements seen in Q2 have flowed through into Q3, all of which underpin a 'robust sales performance across the Group in the second half.' While short-term challenges will be managing rising input costs and pricing pressure in some markets, the Board has the confidence to reinstate the dividend (4c), which is 6 months ahead of our time frame. Given the better than expected H1 and positive outlook, we envisage increasing FY10 forecasts by over 10% to 27-28c but will be leaving subsequent years largely unchanged. These changes reflect our caution on top-line progression in the construction sector and the impact of higher raw material costs. Overall, the results demonstrate to us why Kingspan can outperform the wider construction sector (structural growth plus one of the strongest balance sheets in the sector) and why, therefore, the stock continues to offer value in the medium term."

Results detail

The German Ifo index due out this week could show a turning point for the economy, believes Rainer Gunterman, Eurozone Economist at Commerzbank. He shares his outlook with CNBC's Maithreyi Seetharaman, Yousef Gamal El-Din and Chloe Cho:

DCC plc, the business support services group, today announced conditional agreement to acquire Comtrade SA, a French distributor of consumer electronic and audio visual products to the retail sector in France. Comtrade is based in Paris and has 65 employees. The acquisition is subject to clearance from the French competition authorities.

Goodbody's Dan Cavanagh comments: "DCC has announced the acquisition of Comtrade, a leading distributor of consumer electronic products to the French retail sector. Based on the year to Dec 2009, Comtrade had revenues of €65m and operating profits of €3m. Initial consideration of €11.4m will be paid in cash for a 74% stake, rising to a maximum of €21.2m for the remaining interest over the next three years, on the completion of certain stringent earn out clauses. This places the deal, which is expected to close in October, at around 5-6x historical earnings. In terms of forecasts, this is unlikely to have any material impact to the current year’s numbers, but could add 2-3c (c.1-2%) to FY12. This deal is highly complimentary to the existing Banque Magentique business in France, which will: (i) extend SerCom’s footprint in the French retail distribution sector; and, (ii) offer integration savings on the back office and logistic functions of the combined business. At a group level, this bolt-on deal brings the total acquisition spend YTD to c.€50m, leaving plenty of head room for further deals as the year progresses."

ECB mindful of financial fragility; loose policy set to continue past year-end: Davy's Aidan Corcoran comments: "Axel Weber, the likely successor to Jean-Claude Trichet as governor of the European Central Bank (ECB), gave some guidance for a return to normal monetary policy on Friday. The Bundesbank president and former University of Cologne professor has ear-marked Q1 2011 as the likely time for an unwinding of the exceptional financing arrangements implemented in 2008.
The advance warning was clearly intended to avoid spooking markets. However, the softly-softly tone did not prevent a fall in the value of the euro of more than one US cent, to $1.27. With stimulus measures staying in place until year-end, the interest rate hike that would lead to a strengthening euro may be somewhat more distant than many commentators had expected.

The unusually loose monetary policy stance is good news for the Irish economy. Divergent inflation pressures within the 16-member euro-zone would pose a major problem for the ECB, which could be forced to undermine the peripheral recovery in order to keep prices in check. In this context, Weber's words provide some reassurance that the recovery, which is largely export driven, will be fostered.

Supporting the view that inflation concerns remain of secondary importance from the European standpoint, Irish Central Bank governor Patrick Honohan told reporters in Tokyo that 'inflation expectations are steady' and that he sees a 'stronger tone' to the European economy. Official data due for release tomorrow are expected to confirm strong export growth in Germany, while the Irish trade balance, due on Friday, should likewise show a recovering export sector."

The business community can live with a coalition or labor government, says Australia, Greg Bundy vice chairman of AIMS Finance. However, he warns CNBC’s Chloe Cho, Maithreyi Seetharaman & Yousef Gamal El-Din that if the government “lurches to the left”, markets will be unnerved.

Asia Markets

The MSCI Asia Pacific Index rose 0.1% on Monday.

The Nikkei dropped 0.68%; China's Shanghai Composite added 0.39%; Australia's S&P/ASX 200 Index fell 0.04%  and India's Sensex Index gained 0.16%.

In Europe, the Dow  Jones Stoxx 600 rose 0.49% Monday.

The ISEQ has declined 0.32% in Dublin.

CRH is upf 3.13%; Elan has added 1.82%; AIB has gained 3.58% and Bank of Ireland is up 3.57%.

European Benchmarks

Irish Share Prices


The euro is trading at $1.2695 and at £0.8163.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.


The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.
The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.
On Thursday, July 15, 2010, the index  fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points,

On Friday July16th, the BDI rose 20 points or 1.12% to 1,700 to break the 35-session losing streak; on Friday last week, the BDI rose 112 points or 4.24% to 2,756.

Crude oil for September 2010 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $74.12 per barrel up 30 cents from Friday's close. In London, Brent for October delivery is trading on the International Commodities Exchange at $74.68.

The spot price of an oz of gold is trading in New York at $1,226.20, down $1.80 from Friday's close.