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From left; Fort Hood commander US Army Lt. General Robert Cone, First Lady Michelle Obama, President Barack Obama, and Texas Gov. Rick Perry attend the attend a memorial service at Fort Hood, Texas, for the victims of the Fort Hood shootings, Nov. 10, 2009.
Smurfit Kappa,
Smurfit Kappa, the international paper and packaging group, today reported a sharp fall in profits for the third quarter of this year, as revenue fell by 14% from the same period last year.
Turnover dropped 14% in quarter from a year earlier to €1.5 billion, while trading profits dipped 27% to €96m.
SK reported a pre-tax loss of €27.4m, mainly related to the €49.7m costs arising from the closure of a mill in Slovakia and restructuring at its Cork plant.
The group said it cut net debt by €130m in the quarter to just over €3 billion.
On Tuesday, SK announced a €500m bond issue.
Gary McGann, Smurfit Kappa Group CEO, commented: "The Group is pleased to report a strong cash flow performance and net debt reduction of €130 million in the third quarter, supported by a 4% sequential increase in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to €192 million. This result demonstrates our commercial focus and commitment to efficiency programmes, together with our strong working capital management and continued capital expenditure discipline.
Demand for the Group’s products was generally stable through the third quarter. The improved EBITDA margin of 12.7% again outlines the continuing benefits of our integrated business model, our effective cost take-out actions and the strong contribution from our Latin American business. These positives were somewhat offset, as expected, by higher recovered fibre costs and continued pressure on corrugated pricing in Europe.
While sentiment has improved across our markets, a consumer-led economic recovery and return to demand growth for corrugated packaging has yet to materialise. Due to the unsustainably low levels of paper pricing that prevailed in 2009, capacity rationalisation decisions were taken by a number of industry players. These broad-based supply curtailments contributed to reduce inventory levels to a two-year low at the end of September.
The lower inventory level combined with increased input cost pressure created the conditions for SKG to announce a number of containerboard price increases, the majority of which has been successfully implemented throughout the market. Despite higher containerboard prices, further less-efficient capacity closures are expected in the industry, given the continued upward trend in input costs, especially for recovered fibre.
As is normal, higher containerboard prices will generate some near-term margin compression in our corrugated and converting businesses, but will lead to corrugated price increases. The Group will continue to focus on increasing its operating efficiency, and creating shareholder value by maximising cash flow generation for continued net debt reduction.
Finally, following the successful negotiation of amendments to our senior credit facility in July, we have today announced the launch of a bond issue with the proceeds being used to pay down senior debt and extend the overall maturity profile of our debt. The bond issue is subject to a separate press release.”
Goodbody analyst Robert Eason commented: "Smurfit Kappa has reported Q3 EBITDA of €192m, which was 12% ahead of our forecasts and beat top-end consensus forecasts (€160-177m). The key variances were stronger than expected results in the packaging businesses in both Europe and Latin America, while specialities was in line. The focus on costs continues with the formal cost take-out programme delivering a further €40m in the third quarter (€140m ytd). As a result, the target for savings for the period 2008-10 is now €260m (previously €250m).
Net debt was reduced by €130m in the quarter to €3,034m, which was well ahead of our forecast of €3,148m. The main variances were the higher EBITDA and a much bigger working capital inflow of €95m (forecast of €30m). Smurfit Kappa has also announced the offering of €500m of senior secured notes with an expected maturity of 8 years. Following the strong set of results, there is upside to our EBITDA forecast of €698m for FY09 and we are comfortable with the recent increases to FY10 forecasts (EBITDA of €799m). We, therefore, reiterate our “Buy” recommendation and PT of 880c."
US hedge funds
Hedge funds as measured by the Greenwich Global Hedge Fund Index (GGHFI) declined slightly during the month of October coming off their highest levels on the year.
The GGHFI returned (-0.47%) while the Greenwich Composite Investable Index (GI2) lost an equal (-0.47%) during the month, compared to global equity returns in the S&P 500 Total Return (-1.86%), MSCI World Equity (-1.85%), and FTSE 100 (-1.74%) equity indices.
Year-to-date, the GGHFI and the GI2 have returned +16.78% and +3.41%, respectively, while the S&P 500 Total Return, MSCI World Equity, and FTSE 100 Indices have returned +17.03%, +20.20%, and +13.76%, correspondingly.
46% of constituent funds in the GGHFI ended the month with gains.
The returns are before fund fees and a typical 20% of returns for the managers.
US markets
In New York Tuesday, the Dow Jones closed up 20.03 points or 0.2%, to a new 13-month high of 10246.97 - - up 4.9% over five sessions.
The Nasdaq Composite Index was off 0.1% and the S&P 500 finished unchanged.
With China's growth trend and Beijing's efforts to internationalize its currency, the Chinese yuan can develop into the alternative to the US dollar as a global reserve currency in 15 years, World Bank President Robert Zoellick said Wednesday.
The yuan could become fully convertible in 10 years time, believes Mark Konyn, CEO of RCM Asia Pacific. He explains why to CNBC's Amanda Drury:
Asia
The MSCI Asia Pacific Index advanced 0.4% Wednesday.
China’s economic recovery gathered pace in October as industrial output rose at the most rapid rate since March 2008, while retail sales also posted strong gains - - see link to full story in Box below.
Japanese core machinery orders rose 10.5% from the previous month in September, the Cabinet Office reported today in Tokyo.
Orders fell 22.0% in September compared with the same month the previous year, the data showed.
The government also said core machinery orders for the July-September period were down 0.9% from the previous quarter.
However, the government expects machinery orders to rise 1.0% in the October-December quarter from the quarter before.
The Nikkei 225 inched up 0.01%; China's Shanghai Composite dipped 0.11%.
In Europe, the Dow Jones Stoxx 600 is up 0.68% Wednesday.
The ISEQ is up 0.03% in Dublin.
Smurfit Kappa is up 4.4%
INM has risen 9%.
INM (Independent News & Media) reported Tuesday evening that a meeting of its bondholders backed its restructuring plans.
INM said a vote representing 99.72% of the bonds, was in favour, well above the 75% mark needed.
INM is due to hold an EGM of shareholders on November 26th to vote on the plan, which will give bondholders a 46% stake in the group, almost halving the holdings of existing shareholders.
It is proposed that the group will swap €123m of an overdue €200m bond for a 46% equity stake, which represents 17 cent per share.
Tullow
Goodbody's Gerry Hennigan commented on Tullow Oil's trading statement: "In line with past trading statements, much of the emphasis in this morning’s trading statement was on: (i) progress in terms of developing the Ghanaian and Ugandan development bases; (ii) recent drilling activity; (iii) the schedule of wells to be drilled over the coming months; and (iv) detail on portfolio management. Q4 of next year remains the scheduled start date for Jubilee production in Ghana, while confirmation is provided that the bid process to farm down up to 50% of its holding in Uganda has commenced, with the expectation that the process will be complete by early next year. There is no incremental news on the drilling front, though results are due from Mahogany-Deep-2 (Jubilee appraisal well).
Beyond that, drilling on Odum-2 (risked contribution to NAV of 11.8p, 1.9% of Total NAV) is due to commence later this month, to be followed by Tweneboa-2 (risked contribution to NAV of 88.6p, 8.8% of Total NAV) and Mahogany-5 (Jubilee appraisal well) early in 2010. Elsewhere, exploration campaigns targeting prospects in Pakistan (risked contribution to NAV of 0.1p), Tanzania (risked contribution to NAV of 2.0p) and Suriname (risked contribution to NAV of 3.2p) are on schedule to commence drilling over the coming months. On the new venture front, Tullow continues to actively manage the portfolio with the announcement this morning of a farm-out of its stake in the Matamata prospect offshore French Guiana to Shell from 98% to 64.5%. News of the latter, however, was widely expected."
TVC Holdings
Goodbody's Dan Cavanagh commented on TVC Holdings's interim financials: - - "TVC Holding, the Irish quoted holding company, which holds a 27% stake in Norkom and an 18% stake in UTV, has reported its H110 (six months to September) results this morning. Over the period, the gross value of the portfolio increased by 27% to €88m, with the main drivers being: (i) Price appreciation in the two quoted holdings; (ii) a €2m reduction in the value of unquoted investments, €400k of which related to the depreciation into US dollar; and (iii) a continuation of the operating cost savings imposed during FY08. At the period end, it had €29m in cash and no debt. Based on the equity valuations, its equity value per share was 87c, which represented a 30% discount to last night’s closing price. Considering that 82% (equivalent to 77c per share) of the portfolio is cash or quoted securities, the market is applying a c.21% discount to these market-to-market values and is allocating no value to the unquoted investments, which are valued under industry standard methodologies. In the outlook statement, management indicate that it expects to make further investments at what it believes are current attractive valuations."
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 International Energy Agency has deliberately downplayed the risks of "peak oil" and has been pressured by the US to alter its demand forecasts, according to a Guardian newspaper report Tuesday. Nobuo Tanaka, executive director at IEA, told CNBC the accusations are "groundless."
Goodbody chief economist Dermot O’Leary comments: Economic View; Household savings were low going into the recession - -"Irish household savings remained low in 2008, according to new data released yesterday (Institutional Sector Accounts). After falling to just 1.7% in 2007, the household savings did increase in 2008, but only to 4.2% of disposable income. This compares to a rate of c.14% in the euro-area as a whole over the same period. However, Irish consumers are more closely aligned with UK and US consumers where the savings ratio stood at 2% and 3%, respectively last year. A lot has changed in the intervening period for Irish consumers though.
The full-year figures are likely to be hiding a rise in the ratio in the final quarter of the year, coinciding with the near collapse in the financial system and a subsequent spike in precautionary savings by consumers. Nevertheless, the ratio is lower that we would have thought (although the methodology is slightly different to what we use in our economic forecasts), given that the Irish recession actually began in Q2 2008. This does not change our views that the savings ratio rose significantly in 2009, but the peak in the ratio may be somewhat lower that we originally suspected. It is now likely that the savings ratio rose to 10% in 2009, rather than the 12% that we thought previously.
The ratio was higher in the first half of the year, but we think that stemmed from the pretty extraordinary conditions situation that prevailed in the Irish and global economies at that particular time. The savings ratio is unlikely to fall to the levels that prevailed in 2007, but it is also unlikely to rise to the degree that it did at the beginning of 2009. What is important for consumer spending growth is the change in the ratio rather than the actual level. A modest reduction in the ratio is still likely in 2010, but with household income falling, it will still not lead to growth in consumer spending overall in our opinion."
Davy chief economist Rossa White comments: Healthier risk appetite to lift Irish financial assets - -"The G20 commitment to maintaining policy stimulus may sustain risk markets for a few more months yet. It followed last week's relatively favourable central bank communications (more will be known this week when the Bank of England inflation report is issued today (10:30) and the ECB monthly bulletin is released tomorrow (Thursday)). The ongoing strong performance of gold in particular hints that monetary settings will remain loose. Growing risk appetite has helped the Irish equity and bond market since March. After a recent blip, healthier risk appetite will help Irish assets to make further progress.
Our analysts have recently extended forecasts until 2011. The Irish market (ex-financials) is set for 40% earnings growth that year if those forecasts materialise. There remains significant margin for error either side, but our baseline case is for the global economic recovery to become self-sustaining and for the Irish economy to enjoy proper recovery in 2011 (real GNP may rise marginally next year, but nominal GNP – a better proxy for the top-line generated in Ireland – will not grow again until 2011 on average).
Irish financial assets were (rightly) viewed at the risky end of the spectrum over the 18 months up to about May. Sentiment was severely negative for most of that period, but the pick-up in global risk appetite and the implementation of public finance and banking plans have stopped the rot. As it stands, they look on the right side of valuation metrics. The ISEQ (ex-financials) is trading on 11 times 2011 earnings. If the government delivers with deep public spending cuts as hinted in the December 9th Budget, Irish bond spreads may also converge further with the rest of the euro area in the months ahead (ten-year yields are now 133 basis points over Germany, having tightened 10 basis points in the last week alone)."
Davy's Emer Lang comments: Irish banks: Reiterating 'outperform' rating - - "The final vote on NAMA and the subsequent handover of legislation to the President are due this Thursday (November 12th), paving the way for property loan transfers to commence by year-end/early 2010. Uncertainty regarding the precise bank-by-bank haircuts will persist until all loans are transferred but may become clearer once a representative sample of loans is transferred across. NAMA complies with EC state aid guidelines which primarily focus on bank viability, burden sharing (sub debt and tax surcharge features) and competition. Investors are concerned that the EC may seek to impose 'remedies' in the Irish domestic market, but we find it hard to see how any possible measures to level the competitive playing field in Ireland could be put into effect given the market structure.
Conditions in the UK (particularly housing/property markets), which are of relevance to the Irish banks, have stabilised – giving comfort to loan loss estimates. In addition, the pace of recession in the Irish economy has slowed steadily since Q1, and we now expect it to return to growth as early as Q1 2010 and for unemployment to peak at 13.5% in Q3 2010.
Our base case puts Allied Irish Banks (ALBK) and Bank of Ireland (BKIR) on 2011 P/Es of 4.5x and 6.1x and trough TNAVs of 0.9x and 1.3x. In the unlikely event that the government is the only capital source, P/Es inflate to 6.5x (ALBK) and 8.8x (BKIR). We are adding ALBK and BKIR to our conviction list."
