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Markets News Tuesday: Shares fall slightly in Europe and Dublin; German consumer prices dip in January; UK retail sales stall
By Finfacts Team
Feb 9, 2010 - 9:02:33 AM
Germany's consumer price index in January 2010 rose 0.8% on January 2009 (December 2009: +0.9% on December 2008). Annual inflation remained just under one percent at the beginning of the year. Compared with December 2009, the consumer price index was down by 0.6%.
The German federal statistics office, Destatis, said the inflation rate in January 2010 was mainly impacted by rising oil prices, which were by 13.0% above the level of January 2009 (motor fuels: +14.6%; liquid fuel: +7.0%). Ex-oil prices, the year-on-year rate of price change would have been just +0.2% in January 2010. Energy prices in January 2010 rose an overall 0.9% on January 2009. Apart from the marked price increase for mineral oil products, electricity prices were also up (+3.9%) on a year earlier. However, gas prices (−20.3%) and charges for central and remote heating (−11.8%) decreased markedly over the same period.
Food prices in January 2010 were lower than a year earlier (−1.4%). Marked price decreases were recorded for vegetables (−7.0%; including potatoes: −16.9%) and many dairy products (sliced cheese: −7.9%;
UHT milk: −4.4%; curd: −2.8%). Price increases were observed, however, especially for oils and fats (+4.9%; including butter: +19.8%) and for fish (+3.0%; including fish fingers: +5.4%; smoked fish: +4.7%; fresh fish: +2.7%).
United Drug: United Drug plc today issued an Interim Management Statement and announced that former IDA Ireland chief executive Kieran McGowan retired from the board on Monday.
Goodbody's Ian Hunter commented: "United Drug this morning issued an upbeat IMS prior to its AGM later today. In what is largely a qualitative statement, management noted that profits are "in line with budget" and "well ahead of what was a slow first quarter in 2009". Cash flows continue to be strong across the group. Management is guiding PBT (profit before tax), on a constant currency basis, to be "broadly in line" with FY09. We are currently forecasting PBT of €52.6m compared to €53m (ex-exceptionals) in FY09.
At a divisional level, Healthcare Supply Chain (HSC) profits are ahead of last year. In drug wholesale, revenue in the Republic is in line with the same period past year. The Medical & Scientific business is still experiencing slow capital spend from clients but has won new business and the Specials business is continuing to record strong growth. We currently have HSC revenue and profits dipping 1.6% and 2.2%, respectively, over the full year. In Packaging and Specialty (P&S), profits are well ahead of Q109, with the strong US performance reported in H209 continuing through into Q110. This balances the European business, where profits are slightly below last year, as volumes in the UK business have not yet "returned to previous levels". Development of the Medco JV is ahead of schedule but, as flagged, will "incur significant start-up costs" this year - we have €2.6m pencilled in against a total EBITA of €73.3m. The Contract Sales and Marketing Services division is trading strongly, with profits ahead of last year. Alliance is singled out as a strong performer. Our current model has it flat in EBITA contribution over the year.
One uncertainty overhanging the stock, that was removed nine months earlier than expected, was the review of ex-factory prices being negotiated between the Government and drug manufacturers. Although this was due in September 2010, the level of savings anticipated by the Government was flagged in the budget estimates in December 2009 and the new pricing regime (40% price cut in over 300 drugs for which there is a generic already on the market) came into effect on 01 February. At the time of the budget speech, we adjusted our forecasts to reflect the earlier-than-anticipated impact of the pricing review. Although we currently see earnings slipping 2% in FY10 (they declined 9% in FY09), we believe this is the bottom of the cycle, with Government cuts (both capital and recurrent) fully factored in. Indeed, the tenor of this IMS could see marginal upgrades in various parts of the business, although we will await discussions with management at today's AGM before finalising numbers."
Ryanair: Ryanair announced today it would open its 40th (and first Central European) base at Kaunas (Lithuania’s second largest city) in May with 2 based aircraft and 18 routes (9 new). Ryanair said its new base will deliver up to 1m passengers p.a. and sustain 1,000 jobs at Kaunas with over 120 weekly flights as Ryanair invests over $140 million at Kaunas Airport.
Ryanair also confirmed that it is in continuous negotiation with four other Central European airports to open bases and give consumers a choice and much lower fares than the high fares being charged by Air Baltic, WizzAir and other Central European airlines.
Tougher bank regulation, central banks' tightening and sovereign debt crises won't derail the global recovery, says Thomas Kaegi, head of macroeconomic research, Asia Pacific at UBS Wealth Management. He tells CNBC's Martin Soong, Karen Tso & Sri Jegarajah why:
Economic View; Weather hampers recovery in UK housing and retail sectors: Goodbody economist, Deirdre Ryan, comments: "The UK economy made a weak start to 2010 if surveys from the BRC (British Retail Consortium) and RICS (UK surveyors) are to be believed. The BRC retail sales indicator for January reveals that the value of retail sales was up just 1.2% yoy in January, making for the weakest January since the survey was incepted in 1995. On a like for like basis, the picture is even weaker, with sales 0.7% lower relative to a year ago. This confirms that the reversal of the previous VAT rate reduction (from 15% to 17.5%) led to spending being brought forward to December, especially on big ticket items (like for like sales were up 4.2% yoy that month, the strongest rate of growth in eight years). In addition, the severe weather in January was a further factor in curtailing consumer spending last month.
The same factor was at play in the housing market’s weak start to the year, according to the RICS indicator, also released overnight. While the headline balance, which measures price expectations of surveyors, came in at +32 and was relatively unchanged in the month, the new buyer enquiries subcomponent weakened dramatically, dropping from +18 to -20 and indicating a marked fall off in potential purchasers in January. This is the first time in 14 months the new buyers enquiries balance was negative. The new instructions to sell balance also turned negative in the month (fell from 15.2 to -5.5), the first time this component was negative since May 2009. Encouragingly, however, sales expectations of surveyors remained in line with those seen over recent months, indicating that the surveyors attribute the particularly sharp fall off in potential buyers and vendors to January’s freezing weather, rather than any underlying weakness. While these surveys indicate that a very muted start to the year was made in the UK, there are also difficulties in discerning any underlining patterns in the economy given the extreme weather at the beginning of 2010."
The sell-off in Toyota shares due to its recall woes presents a good buying opportunity for long-term investors, says Seijiro Takeshita, director of Mizuho International. He explains why to CNBC's Maura Fogarty, Adam Bakhtiar and Anna Edwards:
Toyota: Toyota today announced that it would recall about 400,000 petrol-electric hybrid vehicles around the world, including its latest Prius model, to adjust faulty brakes.
The company is recalling 223,068 hybrid vehicles in Japan and about 147,500 in the US due to a problem with the ABS braking system, which is unstable in wet and bumpy conditions.
Toyota's president Akio Toyoda, whom is the grandson of the founder, has said the car giant would do "everything in our power" to regain customer confidence.
"We will tackle the issue with dealers and suppliers," he said at a press conference, speaking in English.
US markets
On Monday, the Dow dropped 103.84 points, or 1%, to 9908.39, led by a 3.5% dip in Bank of America. the blue chip measure had first crossed the level in March 1999 - - see link to story in Box below.
The S&P 500 dipped 0.9% to 1,056.74; the Nasdaq closed down 0.7% to 2,126
Asia
China’s passenger-car sales more than doubled in January, boosted by government stimulus measures.
Sales of cars, multi-purpose vehicles and sport-utility vehicles increased to 1.32 million units, the China Association of Automobile Manufacturers announced Tuesday. Total vehicles sales, which include buses and trucks, more than doubled to 1.66 million units.
The MSCI Asia Pacific Index rose 0.3% Tuesday.
The Nikkei 225 dropped 0.19% and China's Shanghai Composite rose 0.47%.
Discussing the likelihood of Greece turning to the IMF or another organization for help, with Michael Dicks, chief economist at Barclays Wealth, CNBC's Anna Edwards and Maura Fogarty:
Currencies
The euro is trading at $1.3724 and at £0.8776.
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.
Davy chief economist, Rossa White, comments: UK retail stalls in January - - "The UK economy limped out of recession in Q4. But real-time survey (viz. PMIs) and labour market data (claimant count) suggest that activity is stronger than the GDP figures portray. Note that GDP is a quarterly average, whereas data suggest that growth was accelerating each month intra-quarter. But, even though exports of manufacturing and services in particular have benefited from sterling weakness, strong domestic demand pass-through is lacking. Retail sales momentum has faded. Meanwhile housing demand is robust for now, but the asset is not cheap.
The latest retail sales figures from the British Retail Consortium (BRC) were disappointing. Headline sales rose 1.2% year-on-year, but the much more meaningful same-store sales fell 0.7%. That was the biggest decline since May and the worst January comparison for 15 years. It is worth cautioning that sales were probably weather-affected. Food sales were boosted early in the month, but non-food and discretionary items were hit. Although January probably overstates the weak trend, it follows on from Q4 when official retail sales volume growth was slightly softer than in Q3 or Q2.
UK housing demand remains strong. The RICS index bounced back to +32, up two points from December yet still a touch short of the October-November highs. This kind of net balance (of surveyors reporting increases versus decreases in house prices) is in the realm of the lofty readings seen in 2004 (before the blip in 2005) or 2006 (before the bubble popped). But the UK house price bubble only popped; it did not burst. Valuation is still stretched at rental yields of around 4%. The market may prove resilient in the short term as disposable incomes recover and interest rates remain low, but the proper shakeout has been postponed not cancelled."
Goodbody's Gerry Hennigan comments: Tullow Oil; Ugandan timeline, Ghanaian partners -- "Of relevance to Tullow yesterday were comments attributed to government officials in both Uganda and Ghana. With regard to the former, the Minister of State for Mineral Development indicated that he expects Tullow to submit a proposal for a possible partnership in the licences held around Lake Albert this week. Assuming a successful review process, the government would then be in a position to approve the plans by March.
Meanwhile, with much of the recent focus on Uganda, the Wall Street Journal is reporting this morning that the Ghanaian Energy Minister has written to Exxon indicating that its offer for the Kosmos interests offshore Ghana will not receive government approval. The Ghanaian government would appear to be intent on acquiring the Kosmos stake for the State, at what it perceives to be a fair market price. As stated previously, state approval is an important element in the divestment process, a process through which Tullow has negotiated better than most, particularly its US-based partners. That said, while not of direct implication, the stalemate between Kosmos (23.5% of Jubilee) and the state oil company, GNPC (13.75% of Jubilee), complicates the development of the asset, in our view, for the remaining partners, Tullow (34.7% of Jubilee) and Anadarko (23.5% of Jubilee)."
