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News : International Last Updated: Nov 10, 2009 - 4:49:00 PM


Markets News Tuesday: CRH reports pace of downturn easing but Q4 outlook revised downward; Share price slides in Dublin
By Finfacts Team
Nov 10, 2009 - 9:21:02 AM

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CRH, the global building materials group, was formed through a merger in 1970 of two leading Irish public companies, Cement Limited (established in 1936) and Roadstone Limited (1949). CRH accounts for about one third of market capitalisation on the Irish Stock Exchange and more than 80% of CRH's shares are held outside Ireland. About 2,000 of CRH's payroll of more than 94,000, are located in Ireland.

CRH, the Dublin headquartered international building supplies group, today issues a trading update and said that while news flow surrounding economic developments and financial markets over recent months has been more positive than in the first half of the year, trading conditions in it businesses have remained difficult with a like-for-like decline in third quarter group sales of 19% reflecting a modest improvement on the 21% fall recorded for the first half of the year.

CRH said group earnings before interest, tax, depreciation and amortisation for the third quarter of 2009 fell by about 25% compared with a reported 41% decline for the first half of the year.

CRH said poor weather in a number of markets in October combined with anticipated further costs associated with the implementation of additional efficiency and restructuring measures, over and above the initiatives announced in early July, are likely to result in a fall in  EBITDA (earnings before interest, taxes, depreciation, and amortization) decline for the final quarter of 2009 in excess of that recorded for the third quarter. 

Statement

Davy's Barry Dixon comments:"CRH has issued an IMS (interim management statement) indicating that it now expects full-year 2009 PBT (profit before tax) of €730-760m, €80m below our current forecast of €840m (consensus: €856m). Of this, €40m relate to additional restructuring costs associated with new cost-cutting programmes introduced since July. The underlying adjustment is therefore just over 3%.

Most of the decline appears to be in the European Materials division, where FY EBITDA is expected to fall by 45%. Apart from Poland, where volumes are flat year-on-year, there does not appear to be any improvement in demand trends in any other market. The numbers also suggest that pricing is starting to weaken.

Americas Materials is also slightly (circa 3%) weaker than expected as private sector demand (which accounts for circa one-third of this division) had a significant negative impact on volumes. Lower raw material costs (presumably liquid asphalt) resulted in an improvement in margins, but this does not appear to have been sufficient to offset the volume weakness.

At first glance, both European and American Products divisions appear to be performing better than our forecasts, presumably as the impact of cost cutting takes effect. There does not appear to be any improvement in underlying trading, with some stabilization in residential markets being offset by continued weakness in non-residential markets.

The Distribution division on both sides of the Atlantic appears to be suffering, with European DIY markets deteriorating in H2 and interior products demand (mostly non-residential related) in the US also weaker.

On the positive side, cash generation was very strong with a net debt reduction of €0.9bn in Q3. This is very impressive given that we are forecasting circa €1.2bn in H2 EBITDA.

The company's aggressive cost-cutting programme continues with details of the new initiatives to be announced in January. This could bring the total cost programme to close to €1.8bn (€1.45bn at the interim stage). This is substantially more than any of CRH's peers in either absolute terms or as a percent of the existing base. Ultimately, this will be a big positive when markets recover.

Acquisitions have also resumed with a small aggregates business in the US being acquired in Q3. No details on consideration or multiples are given.

Overall, while the likely cut to 2009 forecasts is disappointing, we will likely leave our FY 2010 forecasts unchanged with PBT of €876m (consensus is currently €1025m). Cash generation remains very impressive, with net debt now reduced to just €4.2bn – equivalent to just over 2 times our 2010 EBITDA forecast. We would recommend buying the stock on any weakness."

UK house prices

A survey of UK house prices shows rises to the highest level in almost three years in October, led by London, as the supply of houses did not meet demand.

The Royal Institution of Chartered Surveyors (RICS) said today that in October the balance of surveyors reporting price rises rather than falls rose to 34%, up from 20% in September.

RICS said this was the strongest survey result in favour of rising prices since December 2006.

"Although the supply of property is beginning to pick-up, it is still insufficient to keep pace with the increase in demand which points to further prices gains in the near term," said Jeremy Leaf.

"Cheap money remains a critical prop for the market and this is being reflected in the continuing appetite for finance from first-time buyers despite the large deposits still being demanded by lenders,"he added

Goodbody economist: Deirdre Ryan comments: "This firming of prices, which has also been reflected in official price indices, has given vendors more confidence in placing their properties on the market. The stock per surveyor balance edged up slightly to 63.7 (troughed at 57 in June) while the sales per surveyor indicator also rose further, and at 18.4, is now at an 18-month high. Nevertheless, the pace of increase in the headline price expectations balance as well as the momentum in sales is likely to see current inventory levels wound down at quite a rapid pace. Continued increases in mortgage approvals has been an additional factor in promoting the UK housing market recovery, where prices have risen 7% from April’s bottom according to Halifax. According to the latest evidence this morning, the stage is set for continued house price growth in the UK."

Twenty years on from the fall of the Berlin Wall, Ralph Solveen from Commerzbank considers the importance of re-uniting East and West Germany:

Vodafone

Vodafone Ireland today reported that its average revenue per user fell by 8.7% to €38.80 in the three months from July to the end of September and it added 106,816 new customers in the three month period.

Vodafone's Irish customers increased their voice minutes by 1.2% to 257 per customer in the third quarter, while they also increased the number of texts/SMS messages, they sent by 6.4% to 183 per customer.

Vodafone said its Irish customers' use of voice minutes and texts remained higher than the Vodafone Europe average of 150 voice minutes and 88 text messages per customer for the quarter.

The total number of texts in the three month period increased by 21.4% to 1.16 billion while total voice minutes fell by 1.8% to 1.59 billion compared to the same time last year.

Vodafone said it had 2.12 million mobile customers by the end of September with another 177,607 fixed line and DSL customers, bringing its total customer base to 2.29 million.

The Vodafone Group said today that its first-half revenue, earnings and adjusted operating profits which were all in line with forecasts and reaffirmed its profit guidance for the year.

Foreign currency and cost restructuring resulted in a fall in working capital.

The company said its half-year revenues were up 9.3% to £21.8 billion.

Smurfit Kappa

Packaging group Smurfit Kappa today announced that a wholly-owned subsidiary intends to commence an offering of senior secured notes due 2017 on or about Wednesday, 11 November to non-US persons outside the United States pursuant to Regulation S and in the United States to qualified institutional buyers pursuant to Rule 144A under the US Securities Act of 1933.

The net proceeds of the new notes will be used to repay a portion of the outstanding indebtedness under its senior credit facility.

Goodbody analyst Robert Eason comments: "The only detail given is that it will be 8-year money, which will help to pay down bank debt and extend the maturity profile of its debt. Smurfit Kappa’s revised its banking arrangements back in June, part of which included the ability to raise up to €1bn in the bond markets. At the end of June Smurfit Kappa had net debt of just under €3.2bn."

Fewer US banks tightening credit standards flags loan growth next year

Davy chief economist Rosa White comments: "The latest Fed loan officer survey (released yesterday evening) is highly informative. It shows that the US banking system is recovering quickly on the ground. From paralysis last year, it is returning to normality – with positive implications for the real economy. Far fewer banks are tightening credit standards across commercial loans, real estate, consumer loans and certain parts of the mortgage market. This survey is flagging a return to loan growth some time in H2 next year.

The commercial sector is seeing the biggest improvement; and this was the part of the US economy worst affected at the height of the banking panic exactly a year ago. The net percentage balance of banks tightening lending standards to large and medium-sized businesses is now 14. In Q4 2008, it was a whopping 84 – by far the worst ever. It is also the best result since Q3 2007. Yes, banks are still tightening on balance, but by Q1 more banks may be loosening than tightening: it is the direction and rate of change that matters.

It is now a tale of weak demand rather than banks still squeezing too tightly. For example, the net percentage balance tightening "other consumer loans" is 17 (again the most favourable since Q3 2007), from a height of 67. But demand for consumer loan demand has actually weakened for two straight quarters. There is some positive news for the building sector. Non-residential building investment tends to improve about two years after the inflection point in credit standards (i.e. the peak in the net percentage balance). That turning point for commercial real estate lending standards was in Q3 2008, and the net balance is now 46 points better off. It suggests that US non-residential building investment may recover from late 2010."

US markets

The Dow Jones Industrial Average on Monday closed at a 13-month high; Gold futures finished about $1,100 for the first time and the US dollar briefly fell above $1.50 to the euro.

The Dow rose 203.52 points, or 2.03%, to 10226.94, its highest finish in 13 months and its second 200-point rise in three trading days.

 - - See link to full report in box below.

The Chinese authorities won't allow the yuan to appreciate over the next year or so, says David Roche, global strategist at Independent Strategy Ltd. He explains why to CNBC's Karen Tso & Sri Jegarajah:

Asia

The MSCI Asia Pacific Index rose 0.5% Tuesday.

The Nikkei 225 gained 0.63%; the Shanghai composite added 0.10%.

Asia benchmarks

Finfacts Reports

DCC reports operating profits for six months to end September up slightly to €48.8m
Grafton Group says 2009 turnover to the end of October was down 28%
Dow Jones hits 13-month high; Gold futures finished about $1,100 for first time; USD/EUR moves above $1.50
Oracle with support of US antitrust authorities rejects European Union objection to proposed $7.4bn acquisition of Sun Microsystems
GlaxoSmithKline says simultaneous vaccination against seasonal and pandemic flu provides protection
Markets News Afternoon: Trichet says world has avoided an "extremely threatening" depression; USD/EUR above $1.50; Dow hits 52-week high
German exports rose 3.8% in the month in September
Northern Ireland private sector economy continued to contract in October but at slowest rate since the start of 2008

In Europe, the Dow Jones Stoxx 600 is up 0.04% Tuesday.

UK bank Barclays today reported that profits for the first nine months of the year fell by almost one-fifth after it had to make provisions of £6.2bn for bad debts.

The bank's pre-tax profit for the nine months to the end of September was £4.542bn, down 19% from last year.

Barclays said revenues were up 26% from a year earlier to £23.8bn.

The bank said while its its global commercial and retail banking units saw profits rise 11% over the nine months, profits at its UK retail business "decreased significantly."

Barclays chief executive John Varley said the results showed "the resilience and diversification" of the bank's portfolio of businesses.

The bank's pre-tax profit for the three months to 30 September was down 45% to £1.56bn.

The share price is down 4% in London.

The ISEQ is off 1.4% in Dublin.

Market cap leader CRH has fallen over over 4%.

Irish Continental Group reported today in  a trading that revenue for the nine months to 30th September 2009 was €€197.8 million (2008: €€265.5 million). EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) for the nine months was €€41.7 million (2008: €€55.9 million), while operating profit for the nine months was €€24.1 million compared with €€37.5 million in the same period in 2008. As at 30 June 2009, ICG had reported operating profit for the six months of €€7.1 million versus €€17.3 million in the same period in 2008. The comparative results in 2008 include €€3.8 million profit in respect of the sale of the MV Normandy.

Norkom

Norkom, the Irish software company, which produces financial and  compliance systems, today reported a 14% increase in pre-tax profits to €3.18m for the six months to the end of September.

Revenues rose by 2% to €24.6m and eight new clients were acquired during the six month period.

Norkom said almost 90% of its revenue came from existing clients.

Commenting on the half year results, Norkom's chief executive officer, Paul Kerley, said: "We are clearly pleased to have produced these results particularly in a period of significant upheaval and crisis in our core market. Our capacity to expand our reach into new markets, while, in parallel, generating significant pull-through business from our existing clients, places the company in a strong position to capitalise on a return to normal buying behaviour in our market. While the crisis provided a challenge for Norkom, the strength of our market franchise, solutions and business model made it easier to withstand compared to some of our competitors, which have exited the market. With this market consolidation and the continued endorsement of our solutions by industry analysts, we expect to pick up a greater share of the returning demand in the market, underpinning our plans to return to normal levels of growth for Norkom."

Results detail

European Benchmarks

Irish Share Prices

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.4977 and at £0.8992.

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 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 slid 41% in the third quarter and rose 40% in October.

The index rose 87 points or 2.6% on Monday to 3,480, having risen 9.3% last week.

The Key Indicator of Global Trade  - - Tudor Davies, Motley Fool UK.

Crude oil for December delivery is currently trading on the New York Mercantile Exchange (Nymex) at $78.89 per barrel down 54 cents from Monday's close. In London, Brent for December delivery is trading on the International Commodities Exchange at $77.30.

Gold spot price

Gold is trading at $1,098.10 down $4.80 from Monday's spot price close in New York.

Finfacts Gold Page

Goodbody chief economist Dermot O’Leary comments: Economic View; Ireland gets more time to hit the magic 3% deficit level - - "The European Commission has apparently given Ireland an extra year, to 2014, to reduce its budget deficit to the magic 3% of GDP level, according to press reports this morning. However, this is unlikely to mean that the fiscal consolidation package over the next few years, amounting to 10% of GDP over the 2010-2013 period, will be less severe. Rather, it is a reflection of the fact that falling tax revenues since the Government’s plan was published in April has meant that the 3% of GDP level will not be reached even if savings on this scale are achieved over this time period.

Ireland will have breached the 3% limit for six consecutive years by 2013, but by allowing another year, the EC is effectively endorsing the Irish Government’s plan for the next few years. Indeed, the economic and monetary affairs commissioner is expected to declare that Ireland is taking “effective action” to address the fiscal crisis. Whether the deficit did reach the 3% limit was academic in our opinion and we did not believe it was possible to be reached within the initial timeframe. More important are visible signs that the country is committed to sound public finances. The 5%-6% of GDP fiscal adjustment over the last year and a further 3% of GDP to be announced in Budget 2010 on December 9th are real signs of that commitment. Ireland looks to be going in the right direction as far as the public finances are concerned. This commitment should help in further reducing the current premium on Irish government bond yields."

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