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Markets News Monday: Aer Lingus says it must continue to reduce any costs within its control - - share price jumps in Dublin
By Finfacts Team
Nov 9, 2009 - 7:26:43 AM
Aer Lingus today issued a trading update covering the third quarter of 2009.
Total revenues decreased by 9.7% during the quarter compared to the same period in 2008. Flown passenger numbers increased by 7% year-on-year to 3.08 million. This comprised a 10.0% increase in passengers on short-haul and a 13.2% decrease on long-haul. Average passenger revenue in the period fell by 14.8% year on year.
The former State airline said that short-haul capacity, measured in available seat kilometres (ASKs), increased by 10.5% in the quarter to 30 September 2009 compared to the same period in 2008. Long haul-capacity decreased by 18.0% in the quarter. Overall flown load factor has increased by 1.3 percentage points to 80.4% compared to the same period in 2008, with short haul flown load factor up by 1.4 percentage points to 82.0 %, and long haul flown load factor up by 0.6 percentage points versus 2008 to 77.8%.
Aer Lingus said the business continues to experience challenging conditions. However the actions taken to remove capacity on underperforming parts of the network has had a positive impact on stabilising load factors and yields while reducing operating costs. It said while the fall in yield year on year continues, the pace of decline in average fares does not appear to be accelerating currently. Cost increases in the form of higher fuel prices, airport and navigation charges together with further expected GDP declines and unemployment increases in its major markets, will mean that the airline must continue to reduce any costs within its control so that it can cope with continued falling fares, compete and maintain balance sheet strength.
Goodbody analyst Eamonn Hughes, commented: "Overall, the statement is better than anticipated, with the cuts the airline has taken to date helping to stem the outflows. However, the airline must deliver on its upcoming transformation programme, if it is to achieve a sustainable level of profits for the long term."
The share price jumped 16% in early trading.
Gold
On Sunday, The New York Times reported from Mendrisio, Switzerland, where Italian is spoken and roughly one-third of the world’s gold is refined into bars and ingots, business is booming. Every day, bangles, bracelets and necklaces arrive in plastic bags - - from souks in the Middle East, from pawn shops in Asia and from corner jewelers in Europe and North America.
The newspaper said amid a global frenzy fed by multibillion-dollar hedge funds, wealthy speculators and governments all rushing to stock up on the precious yellow metal, the price of gold briefly surpassed $1,100 an ounce on Friday, a record high.
Jim Rogers, an investor who has made his name investing overseas and in commodities, forecast on Bloomberg Television last week that gold might reach $2,000 an ounce - - prompting a rebuke from Nouriel Roubini, the economist, known as "Dr. Doom," who gained attention for his early warnings about the global economic crisis. At a conference in New York on Wednesday, Roubini described Rogers’s forecast as “utter nonsense,” saying that there aren’t any inflationary or economic pressures that would drive the price of gold to $2,000 an ounce.
According to the New York Times, adjusting for inflation, gold would have to top $1,885 to overtake a record price of $850, which was hit in January 1980.
The Chinese premier offered $10 billion in concessional loans to Africa on Sunday. Demetri Sevastopulo, Asia news editor at the Financial Times, Ian McGuinn, head of operations & research at JLM Pacific Epoch and Kirby Daley, senior strategist at the Newedge Group assess this news, speaking with CNBC's Martin Soong & Sri Jegarajah:
Berkshire Hathaway
Berkshire Hathaway, the holding company of US billionaire investor Warren Buffett, on Saturday reported that third-quarter profit tripled on the gain in derivatives linked to stocks and bonds.
Net income rose to $3.24 billion or $2,087 a share, from $1.06 billion, or $682, in the same period a year in 2008. Operating earnings, which exclude some investments and derivative results, were $1,325 a share.
Last week, Berkshire announced that it planned to buy railroad Burlington Northern Santa Fe Corp. in what Warren Buffett termed as an “all-in wager on the economic future of the United States.”
The acquisition will be the largest ever for Berkshire and will cost the company $26 billion, or $100 a share in cash and stock, for the 77.4% of the railroad it doesn’t already own. Including the previous investment and debt assumption, the deal is valued at $44 billion.
Berkshire had been raising its stake in the Fort Worth, Texas-based railroad for more than two years.
Buffett was on the lookout for what he called an “elephant”-sized acquisition in which he could use his company’s cash hoard, which was more than $24 billion at the end of June. He said trains will become more competitive against trucks with fuel prices high.
Results detail (server was down when we posted the link).
Bank of Ireland Seed and Early Stage Equity Fund.
Tánaiste and Minister for Enterprise, Trade and Employment, Mary Coughlan today launched the Bank of Ireland Seed and Early Stage Equity Fund. This €26m Fund will invest in start-up and early stage companies, with a focus on export orientated high potential start-up companies that operate in the technology (including green technology), food and financial services sectors, in addition to supporting patent and patent pending projects within Irish universities. It will be managed on behalf of Bank of Ireland and the other partners by Kernel Capital.
Another jobless US recovery
Goodbody chief economist Dermot O’Leary comments: "With another 190,000 jobs lost in October, the downturn in the US labour market is on a different scale to any previous recession in post-war history. Since the start of the recession, the US has now shed 7.3m jobs or 5.3% of its workforce. Meanwhile, the unemployment rate breached double-digit territory for the first time since 1983. Despite this continued bad news from the labour market though, equities inched higher on Friday, so it is clear that markets currently prefer to concentrate on the evidence that growth has returned to the US economy and that there is momentum behind this expansion. Output has been growing despite continued declines in employment recently because of a dramatic rise in productivity.
For example, in Q3, labour productivity grew at annualised pace of 9.5% after growth of 6.9% in Q2. This largely explains how firms have been able to beat profit expectations recently, despite relatively weak end-demand. This “sweating” of the assets is typical of a post-recession period as employers are reluctant to begin hiring of workers again as they are unsure of the sustainability of the recovery. Recent indicators suggest that government stimuli are indeed working and have put an end to the US recession. Last week’s ISM (Institute of Supply Management) surveys also confirm that expansion has continued into Q4. This growth though is happening despite a very weak labour market, not in conjunction with it. A jobless recovery is underway."
Asia should be extremely concerned, more than any other region in the world, with the US unemployment numbers, says Kirby Daley, senior strategist at the Newedge Group. He explains why to CNBC's Martin Soong:
Asia
The MSCI Asia Pacific Index rose 0.7% Monday.
Australia's S&P/ASX 200 Index gained 1.8%.
Bloomberg reported that the New Zealand currency rose 1.7% to 73.70 U.S. cents as Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, raised its forecast for milk prices by 19% amid growing global demand.
Fonterra accounts for about 40% of the global trade in butter, milk powder and cheese.
In Europe, the Dow Jones Stoxx 600 is up 1.3% Monday.
German insurance giant Allianz today reported a third quarter profit of €1.32 billion, which was almost double the previous year's figure.
Revenues rose 5.2% from the same time a year earlier to €22 billion, while operating profit jumped by 23.4% to €1.9 billion, its highest level since the second quarter of 2008.
The ISEQ is up 1.9% in Dublin.
Apart from the 16% rise in Aer Lingus, Elan is up 7% and CRH has gained 3%.
Davy chief economist Rossa White comments: Irish construction will be last sector to bottom - - "The latest construction PMI was released this morning for Ireland. The index rose a touch, at 34.5 versus 34.2, but it is still deep in recession (the index would have to get back to 50 to signal growth). PMIs for services and manufacturing are almost back to the growth line, but construction's problems are more intractable. The rest of the economy is inching towards the end of the recession (Q1 2010 will probably mark its end), but construction will be the last sector of the economy to stabilise and that may not happen until 2011. Elsewhere, the coming week sees the government's pre-Budget report, and the latest retail sales are due on Friday November 13th.
It is disappointing to see the broad deterioration in building activity since the summer. Construction has been shrinking since June 2007 month-on-month, but the pace of decline had slowed from rapid to steady in June-August, according to the PMI survey. Since then, however, the falls have become steeper again, driven by commercial and civil engineering. It is vital that the government does not cut infrastructure spending any more than it has already flagged. But new commercial building still suffers from large excess supply. Housing is actually closer to a floor in terms of new building activity, but that is because housing starts are now running at less than 10,000 annualised.
Internationally, it will be quieter after last week's flurry of central bank meetings and key data. But Ireland will see the reverse: industrial production, CPI and retail sales are all in the calendar, as is the government pre-Budget report on Thursday. This report will set out the underlying macro assumptions for the Budget as well as prospects for the deficit. We expect economic forecasts to be revised up, but note that tax revenue is not set to expand much in 2010 because nominal GNP – a better proxy for tax – will decline again next year whereas real GNP may grow slightly. Ahead of this week's first real step in the budgetary process, it was encouraging to hear the louder noises from the government about public pay bill reductions over the weekend."
Davy's Emer Lang comments: G20 proposes the development of new capital rules by end-2010 to be phased in by 2012 - - "In its progress report published on November 7th, the G20 reiterates that prudential regulatory standards should be strengthened once recovery is assured. It repeats earlier calls for the implementation of 'higher level and better quality capital requirements'. Counter-cyclical capital buffers, higher capital requirements for risky products and off balance sheet activities, together with strengthened liquidity risk requirements and forward-looking provisioning, would, it argues, reduce incentives for banks to take excessive risks and create a financial system that is better prepared to withstand adverse shocks.
There is no reference to any specific targets, but on the time frame it notes that leaders have committed to developing internationally agreed rules to improve both the quantity and quality of bank capital and to discourage excessive leverage by end-2010. These rules 'will be phased in as financial conditions improve and economic recovery is assured, with the aim of implementation by end-2012'.
In relation to the Irish banks, we continue to model for a 5% core equity capital ratio at the trough (ALBK end-2010; BKIR March 2011), a level the banks would subsequently build through retentions as they return to profitability in 2011/2012.
Elsewhere, media reports this morning suggest that ALBK Chairman Dan O'Connor may agree to take on the role of Executive Chairman of the group, pending the appointment of a Chief Executive to succeed Eugene Sheehy."
