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ISEQ dips again as Aryzta shares fall

Tuesday, September 25 17:35:21

The ISEQ fell for the second straight day as worries lingered over the euro zone's sovereign debt crisis and as Aryzta shares continued to rack up substantial losses.

The ISEQ was down 17.93 points to 3,310.80.

European equity markets have rallied since July 26 on ECB President Mario Draghi's pledge to protect the euro, given flesh in a Sept. 6 plan to buy government bonds. However, the euro fell today on a German media report that Bundesbank lawyers were checking the legality of the ECB's bond-buying plan. Spanish bond yields inched up, as markets fretted over Madrid's delay in requesting a bailout.

Shares in Irish-Swiss baker, Aryzta, fell 70c to E38.00. "The narrative around Europe in its 2012 results was negative - one we took at face value on an immediate read of the statement," said Davy this morning. "However, on revisiting the data, we are led to wonder quite how negative the region is and, if this is the case, what the reason is for this. Is it the market circumstance or ARYZTA's response to this? While underlying revenue growth year-on-year (yoy) was negative (compared with positive growth in other regions), the rate of yoy decline in Q4 was sharply lower than earlier quarters. Underlying revenue growth yoy was -0.7pc in Q4; it was -2.6pc in Q3 and -1.8pc in Q2. If we assume price growth of 3pc, then a near-4pc volume decline may have occurred in Europe in FY2012."

Smurfit Kappa Group (SKG) has announced an agreement to acquire Orange County Container Group (OCCG), which has paper and packaging operations in Mexico and the Southern US. SKG is paying $340m (E260m) for the business, which is expected to have EBITDA of $53m in the 12 months to December 2012 - implying a multiple of 6.4 times. Management indicated that it expects synergies of $14m from the deal. After synergies, the EV/EBITDA multiple is circa 5.1 times. OCCG will generate revenues of $550-560m in 2012, implying an EBITDA margin of 9.6pc - well below our forecast of 16pc margins for SKG's existing Latam business (includes high-margin operations in Colombia and Venezuela). Even with synergies of $14m, the EBITDA margin is just over 12pc. The deal could add 8pc to group profits post synergies. Shares in SKG fell 2c to E8.10.