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News : International Last Updated: Jul 4, 2013 - 1:43 PM


Markets: Aer Lingus reports strong traffic in June; Origin in JV interest sale
By Finfacts Team
Jul 4, 2013 - 11:40 AM

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President Barack Obama meets with members of his national security team to discuss the situation in Egypt, in the Situation Room of the White House, July 03, 2013.

Origin Enterprises €93m disposal of Welcon Associate:  Liam Igoe of Goodbody comments - - "Origin has announced the disposal of its 50% shareholding in its joint venture, Welcon, to its partner Austevoll Seafoods for a cash consideration of c. €93m. The group’s share of PAT averaged at €8.4m for the 3 years to FY12, implying an acquisition multiple of 11x PE. In our sum-of-the-parts model we had valued the business on a FY13 PE of 9x, or value of c. €70m.

It also represents a premium to net assets of €68m. The deal is expected to be completed in H1 of FY14.

The disposal would be slightly dilutive to FY14 eps (-3.8% or 2c). At this point, however, we are likely to leave forecasts unchanged given the additional funds have been earmarked for funding further growth in the core Agri-services business, therefore we will be tweaking up this segment forecast growth. The deal also leaves the company in a substantial net cash position in FY14.

The disposal, with €23m upside to our current valuation of the associate business, was well flagged to the market as management indicated its intention to monetise assets in its Associates business to fund growth in the Agrii business. It also better positions the business strategically, with c. 10% of earnings now coming from its Associates. Origin is currently trading at a discount to agri-food companies on a PE basis (FY14 PE of 9.7x vs 12-13x for its peers). Given the prospect for high single digit earnings growth and a balance sheet that provides scope to grow the dividend as well as invest in the business we believe such a discount is unwarranted. As a result we believe this valuation gap will close in the coming months.

Irish Economy 2013: New jobs data missing inconvenient facts

Irish managed pension funds declined in June

US private sector employment increased by 188,000 in June

Dr Peter Morici: Modest US jobs creation amid sluggish growth

Aer Lingus: Record long haul load factors in June: Dónal O'Neill of Goodbody comments - - "Aer Lingus has delivered an extremely impressive set of traffic stats for June which fully vindicate its strategy around network and operational optimisation over the past three years, putting it in a position to maximise growth opportunities on long haul in future. At a group level, passenger numbers increased 3.4% while load factor increased 3.6pts to 86.2%.

The long haul business was the real star of the show, which saw a 17.2% increase in passenger numbers and a 2.1% increase in load factor to a record 94.5%. This is an exceptional outturn in the context of a 15.5% increase in capacity on transatlantic routes. Short haul was also quite impressive as passenger numbers increased 1.7% with load factor increasing 3.5pts to 81.6%.

Yesterday, Aer Lingus announced the launch of new services to San Francisco and Montreal, the latter of which will be provided on a damp lease basis from ASL using Boeing 757 aircraft. The former service is being introduced in response to growing corporate demand from the increasing number of Silicon Valley based IT companies which have ever expanding operations in Dublin and Ireland. As a result, long haul capacity will increase by c.23% in 2014.

Aer Lingus has become one of the best airlines in Europe following a period of extensive restructuring and capacity consolidation. Despite this, the stock remains significantly undervalued, trading at just 3.6x FY14 adjusted EV/EBITDAR. We see Aer Lingus as our top pick in the airline sector. BUY."

Economic View: Confidence in the periphery remains fragile; Juliet Tennent, economist at Goodbody, comments - - "Stress in the peripheral bond markets is to the fore again this week, driven by uncertainty around political stability in Portugal and to a lesser extent by a looming Troika deadline for Greece. Portuguese political problems stem from the resignation of the Finance Minister, Vitor Gaspar, earlier in the week, which prompted the resignation (albeit unaccepted) of the leader of the junior coalition partner, Paulo Portas.

These resignations, coupled with rumours of further ones to come, left Prime Minister Coelho’ coalition vulnerable. The austerity fatigue that the IMF warned against in its latest review of Ireland seems to have started amongst the politicians in Portugal. There was also media speculation that another bailout programme was on the cards. The uncertainty created saw Portuguese yields come under severe pressure with the yield on the 10 year rise over 100bps yesterday before retreating to stand at c.7.34% (having tested 8% at one stage), its highest level since the end of 2012. Against this negative backdrop yields on the Irish 10 year increased by 7bps to just over 4%.

Mr. Portas is due to meet with Prime Minister Coelho today to attempt to reach a “viable solution” and restore stability. However, the swift increase in Portuguese yields acts as a stark reminder of how delicate market confidence in the periphery remains and will doubtless give the ECB food for thought during its monthly meeting today."

Portuguese political instability provides warning for Ireland: Conall Mac Coille, chief economist of Davy, said today: "DAVY VIEW: Stock indices fell back on Wednesday as political instability in Portugal hit sentiment. The Euro Stoxx 50 fell 1.25% and the S&P 500 rose marginally by 0.1%. These falls came despite a strong ADP employment report indicating that US jobs growth was 188,000 in June. Irish jobless claims fell by 2,500 in June to their lowest level since August 2009, sufficient to push down the CSO’s estimate of unemployment to 13.6% from 14.9% one year ago.

Portuguese political instability provides warning for Ireland

Equity indices fell on Wednesday: the Euro Stoxx 50 fell 1.6% and the S&P 500 rose marginally by +0.1%. These falls came despite encouraging economic data. In particular, the ADP employment report pointed to stronger US jobs growth of 188,000 in June – ahead of Friday’s crucial non-farm payrolls. That said, a widening in the US trade deficit to $45bn in May suggested that Q2 GDP growth may be weaker than previously expected. Today, markets should be relatively quiet, with the US closed for the July 4th holiday and neither the ECB nor Bank of England expected to change policy.

The key news in Europe yesterday was that the Portuguese government had lost the leader of its junior coalition partner. Portuguese government yields surged, briefly breaking through 8%, up from 6.5% on Tuesday. In this context, Irish yields remained stable, with the 10-year remaining close to 4%. Nonetheless, the events in Portugal illustrate the potential impact of political instability onto sovereign borrowing costs with investors suddenly doubting the resolve to stick to the deficit reduction plan.

This should serve as a warning for the Irish government, especially with coalition partners now debating how to utilise the illusory €1bn ‘savings’ from the promissory note deal. Indeed, much political commentary implies some budget giveaway will be required before the next election. Despite the new fiscal advisory council, as in Portugal, the political cycle still threatens progress in Ireland’s deficit reduction plan.

Irish Live Register jobless claims data showed the unemployment rate falling to 13.6% in June, down from 13.7% in Q1 2013. Normally, large swings in jobless claims are required so that the CSO’s estimate of the unemployment rate falls. But the seasonally adjusted total fell by 2,500 in June to its lowest level since August 2009. Both employment growth and net outward migration will have helped to push down on social welfare claims. But yesterday’s data also showed that new claims in Q2 continued to fall to fresh lows, another positive sign that the labour market is stabilising."

US markets

Markets are closed Thursday for the Independence Day holiday.

In New York Wednesday, the Dow rose 56 points or 0.38% to 14,989.

The S&P 500 added 0.08% and the Nasdaq advanced 0.30%.

Asia Markets

The MSCI Asia Pacific Index rose 0.4% Thursday.

The Japanese Nikkei 225 dropped 0.26%; China's Shanghai Composite gained 0.59%; Korea's Kospi index rose 0.79%; Australia's S&P/ASX 200 advanced 1.07%; in Mumbai, the Bombay Stock Exchange the S&P BSE India Sensex Index climbed 1.22%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is up 0.70% in morning trading Thursday.

In Dublin, the ISEQ has risen 0.41%.

Aer Lingus has gained 0.95%; Origin Enterprises has added 6.70%.

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 $1.3000 and at £0.8537.

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 Wednesday the BDI fell 37 points or 3.16% to 1,133.

Crude oil for August 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $100.74 down 50 cents from Wednesday's close. In London, Brent for August delivery is trading on the International Commodities Exchange at $105.05. 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 $1,249.00, down $3.10 from Wednesday's closing.

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

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