C&C puts strong ISEQ corporate results in the shade

 Investor/An insider's guide to the market: This has been an exceptionally busy week on the Irish equity market for routine corporate news with no fewer than eight companies announcing half-yearly results and full year results from one company.

There was nothing routine, however, about C&C's pre-close trading update announced last Friday. This led to a raft of broker earnings upgrades on the back of an incredibly strong performance from Magners cider.

Sales grew fourfold in the first half of the year and that puts Magners on track for a 2 per cent share of the British on-trade long alcohol market. The shares immediately rose by over 10 per cent and have now risen by approximately 80 per cent year-to-date.

Even after this stellar rise the shares still look good value given the upside potential for Magners.

Compared with C&C's exceptional trading, this week's results announcements were always going to look a little pedestrian.

Nevertheless, Kingspan's first half performance came a close second to C&C as the company reported very strong H1 results that were much better than market expectations. Earnings per share (EPS) rose 31.6 per cent to 40.4 cent and the dividend was raised 35 per cent to 6.0 cent.

Kingspan's product range is environmentally friendly compared with older products and this is coming through in robust sales growth. In the first half of the year, sales rose by 16.5 per cent led by Access Flooring, which was up 27 per cent, while the other product categories of offsite structural, environmental containers and insulation products also did well.

From a medium-term perspective the key feature of these results was that there was a significant improvement in profit margins. If these higher margins can be sustained it implies that the underlying profitability has improved thereby underpinning an uplift in Kingspan's long-term growth prospects.

As brokers rushed to upgrade their sales and earnings projections, the shares rose by 7 per cent in the immediate aftermath of the announcement.

Although Kingspan's shares are now up by over 40 per cent year-to-date, they still have further upside on the evidence of these most recent results.

Irish Life & Permanent also announced a strong set of interim results this week with operating profit before tax rising 23 per cent to €242 million, which was a little ahead of market expectations.

The banking business reported a pre-tax contribution of €90 million, which was up from €66 million in 2004. Volume growth was very strong particularly in mortgages where new mortgage lending was 30 per cent ahead of last year.

Profit margins did tighten in further but this was largely as expected. The life business reported a pretax contribution of €134 million, which was up from €109 million in the comparative period. Life sales were strong, as expected by the market, and profit margins on new business improved.

The share price had performed quite well in the past month and, despite the good results, the shares declined on the day of the results announcement. Nevertheless, at current levels Investor takes the view that IL&P continues to offer good investment value.

Kerry Group has had a difficult year as reflected in a share price decline of approximately 15 per cent over the past 12 months. Energy and input cost inflation has reduced profit margins as the company has struggled to pass on these higher costs in higher product prices. In time, the group should be able to restore profitability through asset rationalisation and strategies aimed at improving supply chain efficiencies. Kerry's share price hit a low of €15.25 in 2006 but has since recovered to a recent trading range of €17-€17.50.

The H1 results are encouraging in that they demonstrate that Kerry's food ingredient and consumer foods businesses are capable of coping with the headwind created by energy cost rises in particular.

However, Investor believes that the share price will remain in a trading range until there is evidence that Kerry is succeeding at regaining higher profit margins.

From an overall perspective this has been a very good week for the Irish equity market as the cumulative weight of company reports provides firm evidence of a robust corporate sector.

Current trading conditions for most Irish quoted companies are very good and, more importantly, the prospects for the coming 12 months look equally bright.