THIS WEEK IN THE MARKETS

IT was a week when equity markets went nowhere, although the Irish gilt market continued to be one of the star performers in Europe with money continuing to flood in from overseas investors. The convergence factor - where investors believe that Irish gilt yields will push closer to German bund yields - is the main factor driving the Irish gilt market, although further progress is expected to be punctuated by profit taking.

The main feature on the equity market was the £23 million sterling acquisition of Prontaprint by Adare - a move that will transform Adare and which has been warmly welcomed by the market. What was particularly welcomed was the fact that Adare was making its biggest ever acquisition without hitting the market for funds, with Prontaprint being acquired through an unconventional but innovative package put together by AIB.

Writing off the Prontaprint goodwill puts Adare into a negative equity position - so gearing cannot be calculated. The debt package, however, is based on Adare's strong cash flow, which means that interest next year will be covered five times by operating profits and covered seven times the following year.

Some analysts believe that gearing the ratio of debt to shareholders' funds is increasingly becoming a redundant basis for calculating a company's ability to meet its debt obligations. Certainly, the Adare financing deal supports that view.

On a conventional finance basis, Adare would probably have needed to raise some equity for the Prontaprint deal, an approach that would have resulted in earnings dilution. Using cash flow as the prime lending criterion has allowed Adare make a very large acquisition without recourse to equity. It means that the acquisition will boost Adare earnings by 10 per cent in a full year, rather than the earnings dilution that would have resulted if equity had been used.

Elsewhere, Fitzwilton seems to have mended fences with at least, some of the Dublin investment community, judging by the response to its £6.75 million placing. Three of the eight institutions involved in the placing were Irish, - but the company is still very light on Irish institutional interest, with the shareholding register Still dominated by Dr Tony O'Reilly and his allies. PDFM is still far and away the biggest institutional shareholder, with only two Irish institutions over the 3 per cent disclosure limit.

Some fund managers - most recently Mr Pramit Ghose of Friends Provident - have bemoaned the absence of a major retailer from the Irish stock market. Mr Garry Weston may have no plans to do so but if ABF ever did decide to float off Quinnsworth/Crazy Prices/Stewarts, there should be no shortage. of investors, judging by ABF's half year results.

Those ABF figures indicate that the retailing operations notched up profits of £34 million sterling in the first half - with £29 million of that coming from the Republic. Even if the retailing operations slowed down in the second half full year retailing profits of at least £60 million seem a reasonable target.