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News : International Last Updated: Jun 18, 2013 - 2:46 PM


Markets: First Derivatives reports 7% rise in annual profit
By Finfacts Team
Jun 18, 2013 - 12:36 PM

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G-8 leaders at Lough Erne, Tuesday, June 18, 2013. The Group of Eight comprises: the US, Japan, Germany, UK, France, Italy, Canada, Russia and European Union.

First Derivatives, the Newry-based software and financial services industry consultancy, today reported a 22.5% rise in revenue to £56.5m in the twelve months ended 28 February 2013.

Pre-tax profit rose  7% to £11.5m.

Results detail

Rachael Cairns of Goodbody commented  -- "First Derivatives released its FY13 results this morning with revenue +22.5% yoy to £56.5m (-3% versus our forecast of £58.1m primarily due to the delay in revenue recognition from the ASIC deal). Adj. EBITDA (Goodbody definition) of £11.0m was 5% ahead of our £10.5m forecast which was due to a slightly higher gross margin, higher other income and lower costs.

In Consulting, the group delivered strong yoy growth of 27% to £41.5m versus our forecast of £42.5m driven by growth in existing and new clients (15 new customers added to consulting during the year). In Software, the group reported revenue growth of 11% for the year to £15m versus our forecast of £15.6m. This implies H2 growth of c.16% versus H1 of 7.2%. Recurring revenue was +36.2% within Software and the statement notes that this trend has continued into FY14. This increase offset a decrease in legacy income from the Cognotec acquisition of -62% yoy.

In terms of current trading, the group notes that in addition to its traditional pipeline it has a strong pipeline of larger prospects arising from the group’s push into Big Data. In addition, the group highlights that it is well positioned for the exchanges/ regulators’ market and expects that it will make a number of announcements in this area in the coming months. On the balance sheet, the group reported net debt of £22.2m, up from £20.9m. In addition, the group has disposed of seven properties in the year giving a profit of £0.7m. The group has announced a final dividend of 8.4p per share leaving the full year dividend at 11.5p, +3% yoy.

Overall, FY13 represents another year of double-digit revenue growth and EBITDA growth. In terms of FY14, we will bring back our forecasts by 7% to £12.8m given the longer expected sales times associated with exchanges/regulators. However, we remain positive on the story given the still strong rates of growth that the company is able to deliver in both divisions, the positive outlook for new clients and the apparent progress the company has made in terms of its software offering through the increase in recurring revenue which gives better revenue visibility. Reiterate BUY."

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Justin Doyle, Investec Bank Ireland, said today:

  • "In very subdued markets overnight we had a mixed bag of positive and negative equity performances with U.S. markets posting small gains and most Asian markets closing in the red;
  • FX markets are equally as dull with most currency pairs stuck in very tight ranges ahead of the all important FOMC announcement on Wednesday evening;
  • Mr. Bernanke can only be upbeat in relation to the housing market with yesterdays NAHB homebuilder sentiment index (52 versus 44 previous and 45 consensus) printed at its highest level since the onset of the US housing crisis in March of 2006;
  • The German ZEW sentiment index is the key EZ economic release later this morning and we can expect some rolling rhetoric as the NI G-8 summit winds down later today."

Conall Mac Coille, chief economist at Davy, comments - - "Stock indices rose on Monday, driven by positive US data on the housing market and industrial production. The Euro Stoxx gained 1.3% and the S&P500 rose 0.8%. US Treasury yields increased by 5 basis points to a peak close to 2.18%. The US national homebuilder confidence survey rose to its highest level since early 2006, indicating that the housing market recovery is well underway. US CPI inflation is today’s key release and is expected to rise to 1.4% in May, ahead of tomorrow’s Federal Reserve policy meeting.
US housing market recovery gathers pace

Stock indices rose on Monday: the Euro Stoxx 50 gained 1.3% and the S&P500 0.8%. Positive data on the US economy helped sentiment ahead of this week’s Fed policy meeting. US ten-year bond yields increased almost 5 basis points through the day to peaks close to 2.18%. The US Empire Manufacturing survey rose sharply in June, back into positive territory – relieving worries on recent poor industrial production data and the fall in the ISM manufacturing survey below the 50 no change mark.

Furthermore, the US national homebuilders confidence survey posted a massive gain to 52 in June from 44 in May. This is the highest survey reading since early 2006 – indicating that the US housing market recovery is well underway and reinforcing expectations that today’s housing starts release will show a rebound in June to 950,000 from 853,000 in May. Although housing starts fell back sharply in May from levels exceeding 1m, building permits continued to rise. So the fall back in US housing starts in May is likely to be temporary.

With the pace of the Fed’s quantitative easing programme a key focus, investors will closely watch today’s US CPI inflation releases. A rise in the headline rate from 1.1% to 1.4% in May is expected. But the core rate excluding food and energy is expected to be flat at 1.7%. In a similar vein, UK CPI inflation is expected to rise from 2.4% to 2.6% in May as price declines in 2012 fall out of the annual comparison. Again, surprises in the UK inflation rate could change expectations for further monetary stimulus from the Bank of England."

Economic View: Ireland passes 10th review; Dermot O'Leary, chief economist at Goodbody comments - - "Following the completion of the tenth review of Ireland’s programme, the IMF once again gave the go-ahead for the disbursement of a further €0.95bn in funding yesterday. In its statement, the IMF gave now familiar compliments about the “steadfast policy implementation” of the Irish authorities to date. It also states that fiscal targets for 2013 remain on track and welcomes the commitment to savings in the public sector pay and pensions bill. In relation to the savings resulting from the promissory note transaction, the IMF is quite cautious, saying that the savings “provide an opportunity to help build buffers against shocks”. In other words, the IMF is saying that the savings should not be used to slow down fiscal consolidation.

In terms of risks, the IMF says that the economic recovery is “not well established and risks to debt sustainability remain”. Dealing with mortgage arrears and troubled SME loans is mentioned as key priorities in the banking sector, while the strengthening of employment services will be necessary to tackle the issue of structural unemployment. These are all familiar risks, but the leaked European Commission report on the 10th review is significantly more pointed in its concerns to the Irish programme. Media reports highlight European Commission warnings on competitiveness issues in some sheltered sectors, long-term unemployment problems and SME debt.

A difference in opinions between the three Troika partners has been in place since the beginning of the programme, with the IMF continuously pushing for more efforts in relation the banking union in particular from European leaders. There is surprisingly little mention, as far as we can see, of the potential need for a precautionary programme, but we would expect to hear a lot more talk about this issue in the coming months as the end of the programme nears."

Banks 1: Spain to proceed with stress tests this year; Eamonn Hughes and Colm Foley of Goodbody comment -- "The Bank of Spain is planning to conduct stress tests on Spanish banks this year according to reports in Spanish newspaper Expansion’s Tuesday Internet edition. The plan is to conduct the tests at the beginning of autumn, ahead of the stress tests planned by the European Central Bank and the European Banking Authority at the end of 2013 and early 2014.

Notwithstanding the likely Troika exit at the end of 2013, a decision was made last week to align the Irish bank tests with the EBA/ECB ones next year (previously it was pencilled in for the autumn). This has removed some timeline headaches for the banks and gives BOI more time to deal with the step up in its preference shares slated for next March (step up at AIB is in May 2014).

Our base case is that BOI raises €1-1.15bn of capital to pay off the €1.8bn of preference shares, but pension savings, disposals and RWA mitigation may go some way in delivering this target. We have a Buy on the equity and are positive on the BKIR co-cos."

Banks 2: Possible EU proposals to issue loss absorbing securities; Hughes and Foley add - -"Bloomberg ran a story in which a proposal from the UK, Netherlands and Finland could see minimum targets for issuing debt and other liabilities written down by regulators in a crisis. The targets would be set centrally for banks that are systemically important but rules for smaller banks would be set by national regulators. The proposal is that systemically important banks should be forced to issue loss absorbing securities, whose value is equivalent to 15% of risk weighted assets or 10% of total capital & liabilities.

In the case of AIB, these targets on the end 2012 balance sheet would range from €11-12bn, with a range of €8.5-13bn at BOI, though there are no time-lines set as yet for the proposal. Looking at loss absorbing capital, our starting point is probably to look at the transition rules Basel III estimated capital ratio at end 2013. However, from this we would probably take off the deferred tax asset and pension deficit, but add back the contingent convertible (the main tier 2 capital in the banks). This measure implies an estimated €6.0-6.5bn base at AIB, implying a c.€5bn requirement on this measure. We note the bank had €6bn of senior debt in issuance last December. In the case of BOI, the equivalent figure is €5.5-6.0bn, but just €3bn+ below the minimum hurdle, with unsecured funding of €8bn last December.

Should this proposal come to pass and obviously timelines are uncertain, it would appear that AIB may have to consider relatively more issuance at a future date. This would obviously come at a greater cost to the P&L account."

Banks 3: Fitch shows Irish RMBS arrears still rising in quarter to April; They further comment - - "Fitch published its latest evaluation of the residential mortgage backed securities market to April with 90 day delinquency trends rising from 17.3% to 18.1%. The 360-day arrears figure, which is often seen as a proxy for defaults, rose from 8.5% to 9.4%.

Irish RMBS accounts for an estimated 40% of the total market. Q1 mortgage arrears data for the market are due on Friday from the Central Bank, the most complete dataset available, but it is clear arrears are still rising.

Our base case is that arrears should start to plateau in the owner occupier market over the summer, with buy-to-let stabilising later in the year or early 2014."

US Markets

In New York Monday, the Dow rose 110 points or 0.73% to 15,180.

The S&P 500 added 0.76% and the Nasdaq advanced 0.83%.

Asia Markets

The MSCI Asia Pacific Index slipped 0.20% Tuesday.

The Japanese Nikkei 225 slipped fell 0.20%; China's Shanghai Composite dropped 0.41%; Korea's Kospi index rose 0.93%; Australia's S&P/ASX 200 declined 0.24%; in Mumbai, the Bombay Stock Exchange the S&P BSE India Sensex Index dropped 0.53%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is up 0.15% in mid-morning trading Tuesday.

In Dublin, the ISEQ has gained 0.05%.

Elan has lost 0.50%.

'European Benchmarks

Irish Share Prices

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3375 and at £0.8564.

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.

On Thursday, July 15, 2010, the index fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Monday the BDI rose 25 points or 2.78% to 925.

Crude oil for July 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $97.55 down 22 cents from Monday's close. In London, Brent for July delivery is trading on the International Commodities Exchange at $105.28. The North Sea benchmark accounts for two-thirds of the global market.

Bloomberg reports that for the first year since the futures were created, Brent crude is poised to overtake West Texas Intermediate (WTI) oil as the world’s most-traded commodity.

Daily trading in Brent jumped 14% to average 567,000 contracts in the year to November 20 compared with all of 2011, while WTI fell 17% to 575,000, according to data from the ICE Futures Europe exchange in London and New York Mercantile Exchange compiled by Bloomberg. The number of Brent futures changing hands has exceeded those for WTI every month from April through October, the longest streak since at least 1995.

Brent, produced in the North Sea, is gaining favour among traders because of its role as the benchmark for energy prices from Saudi Arabia to Russia. Prices have climbed 34% in the past two years, reflecting everything from war in Libya to the embargo on Iran. WTI, the main grade in the US, has risen 9% as the nation, which prohibits crude exports, has struggled to clear a glut at Cushing, Oklahoma, the delivery point for Nymex futures.

Gold spot price

The spot price of an oz of gold is trading on the CME in Chicago at $1,375.70 down $7.10 cents from Monday's closing.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 06, 2011.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.


© Copyright 2011 by Finfacts.com

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