Cantillon

Inside the world of business

Results help to build hopes of construction recovery

TWO SETS of results yesterday indicated that there may well be light at the end of the international construction tunnel, even if the Irish market remains depressed.

Kingspan, the Cavan-based specialist in insulation and energy-saving products, returned to profit growth in the first half of the year for the first time since 2007. Its operating surplus was €33.1 million, 9 per cent ahead of the same period in 2009.

The results were ahead of expectations. Stockbroker Davy estimated adjusted diluted earnings per share (eps) at 14 cent, (basic eps was 12.5 cent), 17 per cent more than the 12 cent that it predicted. Davy is now likely to revise up its full-year forecasts to 28 cent to 30 cent from 26.5 cent.

The only real blackspot was Ireland, where demand continued to weaken. Most of its product lines and the rest of its territories performed well, and chief executive Gene Murtagh believes the second half of the year will turn out to be “solid”. Wisely, he has not elected to make any predictions beyond that.

In a related sector, British house builder Bovis also had some reasonably good news, although it was clouded slightly by its accounting treatment of a joint venture.

But the key thing is the group is likely to pay shareholders a dividend at the end of the year and Davy believes that there is long-term value in the stock. There are still problems, particularly in Britain, where the housing market is in danger of declining again, and the US, where commercial activity has yet to recover, but Europe showed Kingspan encouraging signs during the first half of this year.

Neither company’s investors should be breaking out the champagne yet, but results indicate that, outside Ireland, the construction industry, which has been depressed since the original credit crunch kicked in three years ago, is slowly turning the corner.

Date for the dairy

GLANBIA’S CHIEF executive John Moloney will be preparing himself for some probing questions at tomorrow’s announcement of the company’s half-year results. Six months ago it was all very different. Back in March the food and nutritionals company announced its ambitious plan to sell its Irish dairy division to its majority-owner, the Glanbia co-operative. The plan was defeated by co-op members less than two months later, after the vote fell marginally short of the 75 per cent needed to get the deal over the line, leaving red faces all round.

While it is expected that the company will give some update on the deal tomorrow, sources say that there is little hope of it being reignited in the short-term.

Liam Herlihy, chairman of Glanbia Co-operative, has almost completed the so-called “postmortem” meetings with co-operative committees across the country, but the appetite for the deal – which was supported by 73 per cent of co-op members who voted – seems to have subsided.

The summer – traditionally a busy time for farmers – has served to put the issue on the back burner, but recovery in dairy prices has meant that the deal is perceived to be less attractive to both sides. Farmers have seen an upturn in milk prices, while the Irish dairy division of Glanbia PLC has performed well in the first half of 2010 according to the company’s latest trading update.

The company’s predicted strong first-half performance may serve to assuage investor concerns about uncertainty over the deal in the short-term. But investors and analysts will continue to question the long-term strategy of a company which, having argued that the disposal of the Irish dairy business would allow it to concentrate on its US and nutritionals business, continues to be wedded to the division.

Transparency call

NEWS THAT the Financial Regulator has not found any evidence of mortgage lenders inducing borrowers to move off loss-making tracker rates is to be welcomed. However it is clear that Matthew Elderfield’s team at the Central Bank feel that the institutions need to be more transparent about the implications of moving off these rates.

The banks have been extremely active in letting borrowers on tracker rates know about their “attractive” fixed rates. However, the regulator has now told them they will have to show borrowers how switching off a tracker will impact their monthly payments. For the time being this is just a request from the regulator.

It’s just yet another sign of the trouble that the banks got themselves into during the peak of our commercial and residential property bubble. If AIB’s admission that 59 per cent of its €27 billion Irish mortgage book applies across the sector, banks will suffer heavy losses even on their performing loans.

It also suggests that even after the billions in development loans are shipped off to the Nama at increasingly big discounts, Irish banks will be a long way from being restored to health.

In the meantime borrowers on trackers would be well advised to read the fine print or get independent advice before making any decisions about their mortgages.

Today

Iseq heavyweight CRH and former state airline Aer Lingus will both announce interim results for the first half of the year this morning.

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