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President Barack Obama and President Hu Jintao together at a reception before the formal state dinner at Great Hall of the People in Beijing, China on Nov. 17, 2009.
Glanbia
Glanbia, the Irish food group, says in a trading update today that its 2009 adjusted earnings per share are set to be at the lower end of current markets expectations at between 30 to 31 cents a share.
The company said revenues for its US cheese and global nutritionals unit are forecast to be below 2008. Operating margins for this division is expected to exceed 10% for the full year.
It says its Dairy Ireland division will also be considerably lower this year.
The company said its Irish food retail market is still very challenging, but its consumer products unit is expected to deliver a reasonable performance.
Davy analyst John O'Reilly commented: "As regards the likely FY EPS outturn, the group expects to be within its 30-32c guidance range. In light of the disimprovement in consumer trading, we are lowering our FY 2009 EPS forecast to 30.5c from 31.4c previously.
On outlook, the group notes the increase in global dairy product prices which has occurred but it cautions that it is early days in this regard. For this reason and in the context of prevailing weak consumer sentiment and the considerable uncertainty in currency and financial markets, it remains cautious with respect to next year, though it does expect earnings growth.
We have maintained our forecast rate of growth of 9% though we have reduced our EPS forecast to 33.2c from 34c previously. For FY 2011, we are leaving our EPS forecast unchanged at 36.2c."
United Drug
United Drug, the healthcare services company, today reported a 5% fall in pre-tax profits for the year to September 30, 2009.
Pre-tax profits fell to €39.1m and revenues grew by 2% to €1.72 billion.
The company said that its restructuring and cost reduction programme resulted in a once-off exceptional charge of €13.9m.
Goodbody analyst Ian Hunter Commented: "United Drug reported a solid set of FY09 numbers this morning, with adjusted EPS in line with expectations (23.4c versus 23.5c) despite revenue being slightly (1.4%) behind our forecast (€1.71bn versus €1.74bn). The key variances to our model at the EBITA level were strong out-performances by the Contract Sales and Marketing Services (CSMS) and Packaging and Specialty Services (PSS) Divisions offset by slight under-performance in the Healthcare Supply Chain business. Encouragingly, despite the “difficult trading environment”, the restructuring and cost reduction programme would appear to have had a greater impact than we anticipated, with overall operating margins coming in 20bps ahead of forecast. The company has proposed an 8c per share dividend in line with its stated policy of maintaining the dividend at the FY08 level.
United Drug reported free cash flow for the year of €58.1m, in line with our €57.9m. Working capital requirements over the year fell to €166.4m, compared to €171.4m in FY08 and versus our €176.2m forecast. This was balanced by a higher level of taxes paid. Where we were expecting a €4m dip in net debt over FY08, it actually came in €3.3m ahead of the previous year, primarily on a greater than expected outlay on acquisitions. Little substantive guidance has been given in the outlook other than that the company “remains positive about the growth opportunities” and has a “strong balance sheet and good internally generated cash flows” to support growth objectives. Given that the FY09 numbers are in line with expectations and no material change to the outlook was flagged by management, at first glance, we will be doing little to our FY10 and FY11 earnings numbers, except for some changes to the divisional mix. We currently have 1% EPS growth pencilled in for FY10."
Paul Donovan, senior international economist at UBS, looks at the value of the yuan and discusses the politics behind U.S.-China relations, with CNBC's Louisa Bojesen and Lisa Oake:
150 software jobs for Dublin
Bentley Systems, which developed software for the new Landsdowne Road Aviva Stadium, has announced the creation of 150 jobs in Dublin.
It develops and provides software for infrastructural projects such as roads, bridges, hospitals, apartments and public buildings.
The company is hiring staff to work on multi-lingual finance, sales and marketing, technical support, product release engineers and software industry professionals.
Tánaiste Mary Coughlan said the announcement was testament to the strength of the ICT sector here. She added that the Government was looking forward to assisting the company develop its Irish operations.
Commodity markets ignore weaker industrial production data
Davy chief economist Rossa White comments: "While industrial production growth of just 0.1% in the US in October may have been disappointing, commodity markets did not seem to agree, with further rises in gold, copper and oil. Meanwhile, inflation trends, excluding energy, remain benign with the US PPI (excluding food and energy) falling by 0.6% in October.
Within the industrial production number, manufacturing output was down 0.1% which while disappointing, followed three very strong months. Most of the decline was due to a 1.7% drop in motor vehicle output — presumably as the 'cash-for-clunkers' scheme came to an end.
Despite this, commodity prices, including oil, continued their upward trajectory as these markets anticipate stronger economic recovery.
The rise in commodity prices has yet to be reflected in headline inflation numbers as underlying trends remain negative. The annualised rate of PPI inflation was just 0.7% in October, the lowest rate since March 2004. This was despite a 1.6% increase in energy prices and a similar rise in commodity prices. Over time, this downward pressure will feed through to lower CPI, a factor which will help soothe any fears of Fed interest rate tightening in the short term.
Overall, the data continue to be supportive of our view that global reflation is positive for equity markets. This is reflected in the S&P index which has now re-traced almost 50% of its loss since October 2007.
The puzzling issue today is why the Irish equity market continues to underperform. This is particularly so in an environment of strong international demand for Irish government bonds and the growing percentage of Irish companies' earnings which are earned in recovering international economies."
Bank of England
Bank of England members of the interest rate setting Monetary Policy Committee split three ways in a vote to extend the "money printing" bond-purchase program to £200 billion, earlier this month and discussed lowering the deposit rate on bank reserves to encourage lending.
While the majority of the nine-member Monetary Policy Committee wanted a £25 billion increase, economist Spencer Dale did not support a change and David Miles sought a £40 billion-pound extension , minutes published today showed. The MPC unanimously kept the benchmark interest rate at 0.5% - - a 1694 low.
Goldman and AIG
The Wall Street Journal reports that for more than a year, Goldman Sachs Group Inc. has maintained that it wouldn't have suffered material losses had the government allowed one of its major trading partners, American International Group Inc., to collapse.
A government report throws cold water on that claim.
Goldman was among the largest beneficiaries of a decision by the Federal Reserve Bank of New York to bail out insurer AIG in September 2008 at the height of the financial crisis. The Fed agreed to pay Goldman and 15 other banks, in full, for $62 billion of insurance contracts they had with AIG to protect against price drops of mortgage securities they held.
The report, issued this week by the special inspector general for the Troubled Asset Relief Program, comes amid controversy over whether the government unfairly helped out big banks in its bailout of AIG. The government auditor's report broadly found that the New York Fed left itself little room in negotiating with the banks for a better deal for taxpayers.
Consumers are becoming increasingly optimistic about their financial future. Despite the current economic downturn, there has been a slight improvement in consumer financial vulnerability, according to the Genworth index. David Lane from Genworth discusses the findings:
US
On Tuesday, the Dow rose 30 points or 0.3% to 10,437.
The Nasdaq also rose 0.3% and the S&P inched up 0.09%.
Asia
The MSCI Asia Pacific Index was little changed Wednesday and is up 68% from a more than five-year low on March 9th.
The Nikkei 225 dipped 0.5%; the Shanghai Composite gained 0.6% and India's BSE Sensex 30 dropped 0.3%.
The BDI slid 41% in the third quarter and rose 40% in October.
Strong Chinese demand is continuing to power the demand for ships.
The index hit a new 2009 high Tuesday, rising 161 points to 4,381. It rose for the 14th straight day and is up 102% in 39 days to its highest level since Sept 2008.
“There is success in recession; businesses are doing well out there,” Alan Keir from HSBC Commercial Banking Europe told CNBC Wednesday. There are lessons to be learned from these successes, he said, adding that companies need to reduce “dependence on domestic markets” and adapt to innovation and technology:
Goodbody economist Deirdre Ryan comments: Economic View; Funding pressure for 2010 continues to be removed - -"While the difficulties surrounding the Irish public finances have been well documented, we continue to be very encouraged by the successes being achieved in relation to funding the borrowing needs. A further €1bn was raised yesterday in bond auctions in what is likely to have been the final auction of the current year. This brings the total raised in the year to date to €35.2bn, with just €26bn of that needed to meet funding requirements for 2009. Given that €20bn is the estimated Exchequer deficit for 2010 plus the redemptions, this implies that almost half of next year’s funding needs have been fulfilled at this stage. Indeed, the NTMA might also decide to run down some of its cash holdings next year and has said that the borrowing requirement may be €16bn-€17bn in 2010, which would about half of what it has raised this year.
On top of this, we are also very encouraged by the improving pricing trends. Much of the debt issuance, in the early months of the year in particular, was achieved at the expense of very elevated spreads versus the German bund equivalent. However, the spreads have narrowed consistently throughout the year and yesterday’s auction, which raised €0.2bn in a 5 year issue and €0.8bn in a 10 year issue, continued this trend. The yield on the five year issue, at 3.07%, was just 70bps above 5 year bunds (compared to a 92bp spread on the five year issue completed in September), a lower spread than that seen at any time during the year. The same is true of the 10 year issue which achieved a yield of 4.74%, 147bps above the German equivalent. Similar to the rating agencies, investors continue to become more comfortable with the Irish macro backdrop. It also signals a vote of confidence in the policy actions taken to date by the Irish government in terms of tackling the banking, as well as the fiscal, crisis. With the upcoming Budget 2010 a significant hurdle to cross before year end, these latest trends indicate the Government is on the right track and that the necessary budgetary adjustments need to be pushed through."
Davy's Stephen Lyons comments; AIB; Trading statement revises upward loan loss charges on NAMA-bound loans - - "ALBK's trading statement (November 18th) contains an upward revision to its bad debt guidance for the current year from €4.3bn to €5.3bn, with the increase predominantly due to deterioration in the €24bn loan book which is scheduled to transfer to NAMA. Criticised loans were 25% of the loan book at the H1 stage and the increase in criticised loans in H2 will be significantly less than the €18bn increase in H1. Encouragingly, the statement notes signs of stabilisation across all divisions and that the H2 charge will be lower for capital markets and CEE, and broadly in line for the UK.
Operating profits are expected to be c.€2bn for the full year, in line with our own expectations. Margins are expected to be 25bps lower than the previous year, with the increased cost of customer deposits only partially offset by loan book re-pricing and higher treasury margins. The higher cost of deposits has been reflected in an improvement in the loans-to-deposits ratio, down to 152% at end-September from 156% at the half-year stage. Non-interest income is expected to be down by 10% in the year and costs are expected to fall by 5%.
There is little update regarding NAMA other than the bank's statement that 'there is no reason to believe that the average discount applicable to AIB's NAMA eligible loans will fall significantly outside the Minister's guidance of 30%'. ALBK had previously only indicated that it would be 'below' the 30% (Davy: 29%), unlike BKIR which guided 'significantly below'. The statement also notes that the bank's restructuring plan has been submitted to the European Commission in reason days.
On capital, the group's core tier 1 ratio was at 8.5% at end-September, in line with H1. According to our updated haircuts model, if ALBK were to sell off its stake in both MTB and BZ at current market value, it would generate nearly €2.4bn in capital (in addition to a further €600m from reduced RWA). This would leave the bank needing to raise €1bn in order to have a core equity ratio of 6% at the trough (end-2010). On that basis, our haircuts valuation shows a 2011 PE of 3.2x and a price/book of 0.4x. "
