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ISEQ dips in to red, waits for Spain

Monday, September 17 17:39:14

The ISEQ dipped today after last week's rally as investors await further progress in crisis-hit Spain before committing more money to the recent rally.

The index was down 21.23 points to 3,281.90.

European indices rose sharply last week following the announcement of the Federal Reserve's QE3 programme late on Thursday. The Euro Stoxx 50 Pr closed up 2pc and the FTSE 100 1.6pc. The S and P 500 rose 0.4pc as retail sales saw a healthy 0.9pc increase in August, and the Michigan measure of consumer confidence rose to its highest level since May. Over the weekend, the Euro group of finance ministers met in Nicosia. Comments from Irish government ministers and media reports of unnamed government sources suggest that some progress has been made in renegotiating a new funding package for IBRC with the European Central Bank to relieve the government of the E3.1bn funding requirement for promissory notes. There appears to be some expectation that a new deal could be agreed by the end of September. However, any prospect of ESM capital injections into Irish banks seems unlikely to be agreed by October. Instead, any capital injections will depend on the final package agreed for recapitalising Spain's banks, unlikely to be agreed before the beginning of 2013.

United Drug (UDG) held its investor day in London last week. Set against a framework of updated goals for organic growth, UDG outlined an aspiration to double the size of the business (we take this to mean earnings) over the next five years. It is an ambitious target, but the return of organic growth and some recent acquisitions, bringing scale to several of its non-Irish operations, provide an encouraging platform to achieve this. On organic growth, the underlying drivers of industry volume growth and the increasing scope for outsourcing remain intact. They are the basis for UDG's organic revenue growth target of 3-5pc. Operational leverage and the mix effect of M and A can help drive group margins above 5pc. Organic earnings can grow at 6-9pc on this basis. Cash flow and investment return metrics include a target 75pc conversion of EBITDA to operating cash flow, a ROI of 15pc and a target leverage ratio of 2-2.5x net debt/EBITDA over time. Shares in the group fell 4c to E2.77.