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Markets: AIB recovery on track; Grafton reports improved market outlook
By Finfacts Team
Mar 5, 2014 - 2:22 PM

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Grafton Group, the London listed building materials group, today reported underlying pre-tax profits rose by 35% to £64.9m sterling for the year to December, while revenues climbed 8% to £1.9bn.
Economic View Public spending restraint offsets underwhelming tax take

Grafton Group: Underlying trends accelerate in H2: Robert Eason of Goodbody commented - - Grafton has reported FY operating profits of £77.2m which is up 27% yoy (split 21% H1 / 31% H2) and 1% ahead of forecasts. The key variances were lower than expected central costs and a better outturn in UK merchanting which was offset by a weaker than forecast performance in Irish Retail. The positive variance at an eps level was larger, 7%, due to a lower than expected effective tax charge.

The stronger top-line progression is also mirrored in the margin progression of 60bps for the FY to 4.1% which was split 45bps H1 and +72bps in H2. Of particular note is merchanting, with margins expanding in both the UK and Ireland by over 100bps in H2 (versus +15bps and 66bps, respectively in H1). This highlights the operating leverage with volume growth. While small in the context of the group, manufacturing has now achieved margins above 10%.

The key takeaway from the results is the increased momentum in the second half of 2013. In addition, management appears incrementally more comfortable in the outlook, citing that the “overall outlook is more favourable than it has been for some time”. This is also reflected in ytd lfls: UK merchanting +9.8%, Irish Merchanting +7.1% and Irish Retail +1.6%. This gives comfort in our forecast for operating profits of £97m (+25% yoy) in FY14 (consensus £91m) which will be left unchanged post this set of results, with earnings growth underpinned by lfl growth across all businesses and further margin progression. Reiterate BUY."

AIB (Allied Irish Banks) today reported a full year loss before tax of €1.69bn for 2013, which compares with red ink of  €3.73bn in the previous year. 

AIB Group Recovery on track: Eamonn Hughes of Goodbody comments - - "AIB has reported a FY13 net loss of €1.6bn, compared to our €1.67bn loss forecast and a €3.6bn loss in FY12. Pre-provision profit was €445m compared to our forecast of €361m (interest income looks in line, non-interest income a little higher, costs better). Bad debts were slightly higher than anticipated. The transition rules capital ratio was 14.3% (10.5% fully loaded basis including the preference shares), leaving operating profit exactly in line.

Net interest income pre ELG costs was €1,518m vs our expected €1,536m. ELG costs in FY13 were €173m (€200m estimate). The reported net interest margin was up 15bps to 1.37% (1.28% in H1, implied H2 margin of 1.45%) and we had been anticipating a 1.37% figure. Ex the NAMA senior bonds, the NIM was 1.54% (1.42% in H1 and implied 1.67% in H2). Average interest earnings assets were down 9%. Non-interest income was €570m compared to our €540m expectation, helped by trading and other income. Operating costs were 16% lower for the full year highlighting the progress being made on restructuring. This drove an operating profit of €445m compared to our €361m expectation. The bad debt charge was €2.14bn for the full year, essentially in line with our €2.06bn forecast (we included €500m for the Central Bank balance sheet assessment and disposal haircuts of €0.2bn from H1).

There were €28.9bn of impaired loans in December (34.9% of advances) and down modestly on the €29.2bn (34%) in June 2013. Impaired Irish mortgages were €8.8bn (23% of loans) from €8.46bn (21.8%) last June. On the funding side, the Loan to Deposit ratio was 100% from 106% in June. Deposits were €65.7bn vs €63.6bn last December.

AIB has outlined some medium term targets with a 2%+ margin target (LDR of 100-120%, cost income ratio target of sub 50%, normalised impairments of <65bps and fully loaded CET >10%. This compares to our forecast of a 2%+ margin, sub-50% cost income ratio by 2017 and normalised impairments of 70bps, producing €1bn on net income in FY17. The results highlight continued progress on margins and the stabilisation of impaired loans. We expect AIB lose €0.2bn in FY14 and turn profitable in H2, which is on track. AIB indicates the capital structure will be addressed this year."

Economic View Public spending restraint offsets underwhelming tax take: Dermot O'Leary of Goodbody comments - - "In light of the pick-up in the Irish economy recently the performance of tax revenues has been relatively disappointing. According to the latest Exchequer Returns released yesterday, tax revenues were flat in the opening two months of the year. Income tax receipts were particularly disappointing given the momentum in the labour market. In the opening two months of 2014, income tax revenues were unchanged relative to the opening two month of 2013, with the performance likely explained by continued anaemic wage developments in general. More positively, VAT receipts managed to grow 7%, reflecting the more positive consumer developments over the Christmas period and beyond.

Despite this relatively flat picture for tax revenues, continued spending restraint continues to be a feature. In the opening two months of the year, voted expenditure fell by 3%. This followed a 4% fall in 2013 overall, with the key departments of health and social protection continuing to see a reduction in expenditures.

Some peculiarities around the timing of tax collection and some other issues have led to some volatility in some of the fiscal data at the start of the year, but there is nothing to become overly concerned about at this stage of the year. The forecast is for a budget deficit of 4.8% of GDP this year. Given the domestic momentum and spending restraint that still looks like a reasonable target."

US markets

In New York Tuesday, the Dow rose 221 points or 1.41% to 16,396.

Both the S&P 500 added 1.53% and the Nasdaq advanced by 1.75%

US benchmark updates

Asia Markets

The MSCI Asia Pacific Index rose 0.5% Wednesday.

Japan's Nikkei 225 rose 1.20%; China's Shanghai Composite dropped 0.89%; South Korea's KOSPI added 0.88%; Australia's S&P/ASX 200 gained 0.85% and in Mumbai, the Bombay Stock Exchange the S&P BSE India Sensex Index climbed 0.32%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600  is up 0.05% in early afternoon trading Wednesday.

In Dublin, the ISEQ  has slid 0.09%

AIB Bank, which has a tiny private sector float, is up 0.68%; Grafton has risen 2.69% in London..

European Benchmarks

Irish Share Prices

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3717 and at £0.8211.

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.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time high of 11,771 on May 21, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

On Thursday, July 15, 2010, the index fell for the 35th straight session, by 9 points, or 3.11%, to 1,619 points, Bloomberg report.

On Friday in London the BDI closed up 11 points or 0.95% to 1,175.

The index rose by 220% in 2013 to 2,237.

Global rebalancing — the tanker scrapyard index?

Crude oil for April 2014 delivery is trading on the Chicago York Mercantile Exchange (CME/Nymex) at $102.95 down 38 cents from Monday's close. In London, Brent for April 2014 delivery is trading on the International Commodities Exchange at $108.58. The North Sea benchmark accounts for two-thirds of the global market.

Finfacts, July, 15, 2013: US West Texas Intermediate oil benchmark jumps in July - - margin between WTI and Brent falls.

Gold spot price

The spot price of an oz of gold is trading on the CME in Chicago at $1,337.40 down 40 cents from Monday's closing - - the gold price fell 28% in 2013, the biggest annual plunge since 1981.

Gold had hit a record high of $1,921.15 a troy ounce on Sept 06, 2011.

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