Figuring things out

Croesus/The Investor's View:  Over the past week Croesus has been reviewing financial reports and corporate news items from overseas companies and markets which have relevance to Irish-quoted companies. As well as providing useful insights, this exercise offers welcome relief from the rather narrow focus on the woes of the Irish property and construction sectors.

On Tuesday, Danske Bank reported third-quarter results for 2007 that were well received by the market. Management guided that fiscal year 2007 profits would match those of 2006.

The Danish mortgage system disallows subprime lending and loan-to-value ratios above 80 per cent. Funding also needs to be matched to mortgages so that the market is extremely low risk. This means that Danske is in a strong position from a liquidity/funding perspective.

The Irish interest in Danske relates to Northern Bank (NB) in the North and National Irish Bank (NIB) in the Republic. Both are making progress, with NIB generating profits after tax of €21 million and NB €14 million in the first nine months of 2007.

NIB increased lending by 43 per cent year-on-year, which points to market share gains, albeit from a very low base. Danske said it expected Irish economic growth to slow but to stay above the European average.

Staying with news related to the financial sector, data from the UK commercial property market continues to point to a slowdown. CBRE's UK prime rent and yield monitor showed that yields rose across all property sectors in the third quarter, which is the first time yields have risen on this measure since 2001. Rising yields imply falling capital values. The Investment Property Databank showed a 1.6 per cent year-on-year fall in UK commercial property values in August.

The Bank of England's financial stability report also cautioned on the outlook for the UK commercial property sector. Anglo Irish Bank is heavily exposed to the UK, with 42 per cent of its overall loan book secured on UK commercial property at the end of March 2007. Therefore, worries regarding the UK property market, on top of Irish property concerns, go a long way to explaining Anglo's underperforming share price.

Of interest to CRH shareholders are third-quarter results from Vulcan Materials in the US, which reported operating earnings of $214 million (€148 million). This was up 3 per cent year-on-year but behind consensus expectations.

The management stated that higher volumes would continue to be hampered by the weak residential market, although infrastructural spending should remain strong.

UK housebuilder Taylor Wimpey issued a trading update indicating that market conditions in the UK are subdued.

The group highlighted that prices were stable, but it had seen a reduction in visitor numbers and reservation levels, which had been "exacerbated by the recent turbulence in the financial markets". It expected UK market conditions to remain subdued, but long-term supply constraints would continue to support the market.

Abbey generates 65 per cent of its profits in the UK and McInerney 48 per cent.

Turning to the food sector, Wendy's, which sources bread from Iaws's La Brea operations in the US, reported third-quarter earnings well ahead of the consensus. The results reflected increased profit margins due to menu price increases. Iaws continues to see a strong performance from its US operations.

Of interest to Fyffes shareholders were results from Fresh Del Monte, which reported third-quarter earnings per share of 55 US cents, up from a loss of 144 cents in the comparable period. The improvement was attributed to stronger banana selling prices, which more than offset a planned volume reduction.

These comments on higher global banana pricing bode well for Fyffes, which is also a beneficiary of the weak dollar.

Of relevance to Origin Enterprises are results from Kemira, the Finnish fertiliser group. Origin comprises the agribusiness, fishmeal and ambient food operations of Iaws, which continues to own 71.5 per cent of its shares.

It is market leader in the Irish blended fertiliser market and a significant player in the British market. Kemira said it expected demand for fertiliser to remain strong as high global cereal prices and the EU's decision to remove set-aside land regulations would boost cereal cultivation activity.

It is difficult to draw firm conclusions from such diverse news.

However, two threads are emerging: property market developments will continue to weigh on financial stocks for the foreseeable future; and the food/agribusiness sector is set to become a long-term beneficiary of strong growth in global demand for food and biofuel.