Monday 5 December 2016

Companies to watch out for in 2011

Published 06/01/2011 | 05:00

An improving financial position
at Aer Lingus could prime the
pump for a rapid sale of the
Government's remaining 25pc
stake in the carrier as part of its
efforts to play down the burgeoning national debt. Photo: Getty Images
An improving financial position at Aer Lingus could prime the pump for a rapid sale of the Government's remaining 25pc stake in the carrier as part of its efforts to play down the burgeoning national debt. Photo: Getty Images

There is no such thing as normal, at least not anymore, but companies, good and bad, have to faceinto challenges anew in 2011.We take a look at the companies most likely to make the news this year. John Mulligan and Donal O’Donovan report.

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EIRCOM

A red-letter year for Eircom as it prepares to renegotiate at least part of its almost €4bn debt pile.

The telco, which is majority-owned by Singapore Technologies Telemedia, is counting the cost of the downturn, as mobile and fixed-line revenues continue to decline.

The company has lost a number of key figures within the past few months, including most recently its chief financial officer, Peter Cross.

The group's chief executive, Paul Donovan, while publicly downplaying any suggestion that tacking Eircom's debt structure is an urgent matter, is likely to be under pressure to secure a solution.

Investors aren't impressed that it has taken this long to address the issue.

It's possible that in order to avoid breaching covenants that STT and Eircom's Esot could inject cash into the business.

That seems a long-shot. STT will almost certainly be shy about pumping fresh capital into the business which it gained control of for just €40m in cash, while the Esot would also face hurdles in doing so.

Either way, at least part of the answer to Eircom's debt problems will have to emerge in the coming weeks.

CRH

The Clondalkin-headquartered global building materials group took a beating in 2010 as it surprised the market with a profit warning in August.

The company, which generates about half its earnings in the United States and a big chunk of the remainder from within Europe, has been hit by economic headwinds in its biggest market.

It has also attracted criticism -- which has been deflected by the group -- that it hasn't diversified its geographic base as much as rivals.

CRH maintains that it has an increasing presence in emerging economies, with about 15pc of earnings generated from those regions in 2010.

Davy Stockbrokers reckons that earnings at CRH are likely to have troughed in 2010 and that the stock is likely to enter an upgrade cycle in 2011 driven by operating leverage as volumes recover.

The broker added that CRH maintains the strongest balance sheet in the sector, which will support further acquisition-led growth.

AER LINGUS

An improving financial position at Aer Lingus could prime the pump for a rapid sale of the government's remaining 25pc stake in the carrier as part of its efforts to play down the burgeoning national debt.

It could be one of the first state-owned assets to go, and based on the airline's current market capitalisation, a back of the envelope figure for the stake would be €143m.

But the elephant in the room is Ryanair, which owns almost 30pc of Aer Lingus.

It would probably buy the stake if it was offered it, but that's about as likely to happen as a cold day in hell.

That results in a hunt for another strategic buyer who won't mind having Ryanair as the single largest shareholder on the register -- an unlikely enticement.

Michael O'Leary has said that he would consider selling Ryanair's stake, but the holding is an important means of deterring any rival from entering its home patch. So, while the government could put the stake up for sale, finding a buyer might be difficult.

MAINSTREAM RENEWABLE POWER

Eddie O'Connor made a fortune from Airtricity, the wind energy generation company that was eventually sold to Scottish and Southern Energy.

He then set about trying to replicate the success on an even grander scale with Mainstream. The company is involved in three major offshore wind projects in the UK, as well as developments in north and south America, as well as South Africa.

A consortium including Mainstream is on track to construct the bulk of a 5,000 sq km offshore windfarm in the UK by 2020.

The project will cost an estimated £15bn (€17.6bn). Last month, Mainstream said a joint venture it's involved in will spend €180m building a wind farm in Illinois. This year is likely to bring further developments for the company.

ASSOCIATED BRITISH FOODS

The Penneys/Primark owner owns a suite of well-known household brands such as Ryvita, Twinings and Blue Dragon, as well as an agri business.

But it's the retailing side that has attracted all the attention in recent years as Primark expanded its footprint across Europe and racked up stellar sales and profit growth. It accounts for 25pc of ABF's revenues. Until last year, Penneys/Primark was steered from its Dublin HQ by retail legend Arthur Ryan.

The mantle passed to Paul Marchant. But the powerful performance at Primark is being tested. Last summer, sales growth slowed, while ABF warned last month that Primark profits are likely to be hit by narrower margins on the back of higher commodity prices.

NAMA

The National Asset Management Agency has vowed to be a tough sheriff and last month warned it will pursue developers who transferred assets such as family homes to wives in an effort to put them beyond reach.

"Nama is acutely sensitive to the risk that developers have tried -- or will try -- to transfer assets from their own names to spouses or other family members in order to remove them from the scope of NAMA," it said.

"The agency is pursuing developers to bring such assets back."

Meanwhile, taxpayers will be looking for evidence that NAMA has begun to offload more properties in order to recoup at least some of the billions of euros that they've pumped into the banks.

FACEBOOK

If current projections hold then the tail end of 2011 is likely to feature Facebook fever when the social networking company is prepped for a US$50bn stock market flotation in 2012.

Facebook is already a major online presence, increasingly able to generate revenues by matching advertisers with its 500 million users.

This year the number working at the company's European headquarters in Dublin is set to rise from 200 to 300 and the experience of tech flotations in the past means many of those Irish employees could be in line for their own slice of that US$50bn pie.

The ball started rolling on that deal this week with a New York Times report that Goldman Sachs has raised US$500m from its clients to invest immediately into the business.

At that price an IPO would double the fortune of boss Mark Zuckerberg to around US$14bn, putting him in the big league of tech billionaires.

If the deal succeeds the owners of social networking sites LinkedIn and Twitter may well follow with their own flotations.

That scenario inevitably recalls the dotcom boom in the late 1990s when many investors were burned by buying into what turned out to be flash in the pan deals from companies that were often innovative but rarely profitable.

GREENCORE

Greencore CEO Patrick Coveney emerged as the coming man of corporate Ireland at the end of last year with his planned €580m merger with UK rival Northern Foods. The all paper deal means shareholders of Greencore don't have to pony up cash to back the transaction which, if it succeeds, gives the company unprecedented scale as a supplier in the UK convenience foods market.

The tie-up hit a bump after being announced after a rival bidder emerged in the form of Boparan Holdings, a major UK chicken supplier, also interested in buying Northern Foods.

Still the Greencore bid looks the more likely to succeed not least because Coveney won over Northern Foods management before tabling his offer. Under the Greencore deal the two companies will be merged to create Essenta with a management team drawn from both sides.

Essenta will be listed on the London Stock Exchange and the new name, higher turnover and better profile should be the end of Greencore's lacklustre share performance.

BANK OF IRELAND

The fate of Ireland's last major independent financial institution hangs in the balance in 2011.

Last year's collapse of arch rival AIB into state ownership has been of little comfort to the bank which is next in line for nationalisation unless it raises €1.5bn from private sector investors by the end of February.

Bank of Ireland is already 36pc owned by the state as a result of a deal that has already lost money for the National Pensions Reserve Fund. It is next in line for nationalisation unless it can find €1.5bn from private investors by the end of February.

Convincing shareholders to pump fresh capital into the bank is a tough ask.

Investors who backed a rights issue last May are out of the money and its still the case that few bets are more likely to catch out the unwary than investing in an Irish bank.

That's the crux of the challenge facing Bank of Ireland as it tries to retain its independence -- how much is the bank worth and who is willing to back a valuation with cash.

BORD GAIS

With the IMF searching down the back of the Irish couch for spare change sales of some semi-states look inevitable.

Details of a strategy for the sector are due to emerge later this month but Cork based Bord Gais looks like the prime candidate to test the waters.

The business is smaller and less important to the economy than the ESB but big enough to attract bidders looking to enter the Irish market.

Bord Gais is an attractive asset, operating in a regulated sector and with plenty of cash on hand to finance its business. The company is one of just two semi states currently rated by international ratings agencies and despite a downgrade on December retains an "investment grade" assessment.

Lack of private sector competition here means any of the big continental players like French giant EDF, Germany's E.ON or Spain's Gas Natural could launch a bid for the company without triggering competition issues.

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