Friday 30 September 2016

Eircom is back in play as shareholders show fatigue

Published 24/05/2015 | 02:30

Jim Flavin
Jim Flavin

Eircom is back. Back in play that is. The former state company may have rejected a "credible" offer of up to €3.3bn but expect another run at this one. You don't kick the tyres on a €3bn business only to walk away at first refusal. Anchorage Capital, a major US investment house snapped up a quarter of the company in recent weeks, to bring its stake to over 30pc.

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Eircom would not identify the party who made the offer, but all eyes will be on Anchorage. Eircom chief executive Richard Moat explained how it expects to see revenue growth later this year and that would bring the business one step closer to an IPO.

Looking at Eircom's third quarter figures, it is growing in lots of categories. Broadband connections are up 9pc. Its Ebitda is up 8pc at €120m. In the mobile division it now has 43pc of its customers on more lucrative post-pay contracts instead of pre-pay, up from 23pc.

There is a bloodbath going on in the mobile sector right now. Average revenue per user for pre-pay customers continues to fall.

In the year to March Eircom shed 33,000 pre-pay customers but gained 48,000 post-pay. Vodafone Ireland saw its revenues dip by 3pc in the last year because of a range of factors including competition in the pay-as-you-go market.

Despite its improving metrics, its fixed line revenues were down €8m to €235m in the quarter. In the very same quarter back in 2011, its fixed line revenues were €356m. The rate of decline has slowed and Eircom believes the falls are now set to stop.

The company's financial performance is heavily boosted by job cuts. Eircom shed another 267 staff in the last year which helped reduce pay costs by 17pc.

The business is at an inflection point and hence the rather timely takeover approach.

Private equity group Blackstone has sold most of its stake. If Eircom is turning the corner, and it appears to be, it is turning it slowly. A growth trajectory and IPO are still about two years away. Add on another two to three years before private equity shareholders make a full exit. It's a long wait for some shareholders especially when they have written off €1.7bn in debt between them. A reasonable offer and Eircom is there for the taking.

Flavin is still a winner

Jim Flavin is still the big winner at DCC. The market gave an ebullient response to DCC's £338m acquisition of French LPG business Butagaz, during the week. Its shares climbed 15pc on DCC's results and news of the deal.

One man who must have enjoyed it more than most was its former executive chairman Jim Flavin. He saw the value of his 2.6m DCC shares rise by €26m in the last week.

It's a long way from that Supreme Court insider trading banana skin that preceded his resignation back in May 2008. Flavin was later exonerated by a High Court inspector's report.

Flavin's DCC stake is now worth €185m as he has barely sold a share since he left the company seven years ago. His dividend alone for last year would have been worth €3m.

The business has done well since Tommy Breen took over but the last two years have seen significant gains. Currency movements will have helped.

Its business interests are so diverse, that in theory it shouldn't really work at all - but it does.

For example, DCC owns 307 unmanned petrol stations in Sweden, while it is also the largest distributor of wine in Ireland. Despite the diversity, the core of the business remains its energy and technology divisions which account for around 90pc of its €14bn in revenues, and around 75pc of profit.

These are lower margin businesses, so they have to keep acquiring to get significant top line group growth. Last week's French deal will lift operating profit by 20pc right away and DCC will not doubt squeeze more out of its performance in the years ahead.

DCC shares have shot up by 114pc since the investment group shifted its share listing to London in February 2013 and joined the FTSE 250. Over one third of its shareholders are now in North America, with just 5pc in Ireland. Given that Jim Flavin owns 3pc of the company, other Irish punters have been remarkably thin on the ground.

OMG! Dundrum is finally on the market

So Dundrum Town Centre is finally going under the hammer. For developer Joe O'Reilly it will be a tough reminder of just how much money he could have made, if he hadn't over-stretched.

O'Reilly developed some excellent blue chip properties but racked up around €2.8bn in debt. Dundrum is expected to go for around €1bn. O'Reilly has played ball with Nama throughout the last few years.

The timing of the sale looks about right. It could have been sold very easily a couple of years ago, but higher commercial property prices are being matched by greater confidence in the economy.

Green property's Blanchardstown Centre has been recently refinanced with a valuation of around €900m. It's a huge site but Dundrum is like a massive ATM machine. The rent roll on it is €55m per year.

Those Southsiders are back shopping, but some would say they never left this shopping centre during the recession. 'Iconic' would be putting it a little strongly, after all it is only a shopping centre.

Ross O'Carroll Kelly should have written the sale prospectus. He once said of it: "Like Tom Hanks character in the movie The Terminal, you could spend 20 years of your life in Dundrum Town Centre and never get sick of the food….children could grow up here happy and healthy. Come to think of it, they do."

SME funding is out there if you know where to look

Two big problems facing start-ups and SMEs are where to get funding and also figuring out what kind of funding makes the most sense. Right now, despite the challenges for SME's there are literally billions of euro available for investment or lending to SMEs.

The state has the ISIF investment fund with over €6bn available. The state Strategic Banking Corporation of Ireland has hundreds of millions to lend. But on a much smaller scale, there are angel investors and peer-to-peer funding or even invoice funding or asset finance.

Entrepreneurs can waste valuable time pursuing the wrong avenues to get the wrong kind of money at the wrong price. And after all that, they may still be turned down.

With that in mind FundSME is a new website which brings together all of the information on every kind of finance that a start-up or SME might need.

It is a simple, yet badly needed idea. FundSME is hosting a major free open event at the RDS on Thursday May 28th attended by investors, funders, banks, eight state agencies, crowdsource funders and more, offering 30 alternative and traditional sources of funds.

Around €50m has been pledged from funders as available on the day if the right projects are there. It's for Joe Bloggs as much as for Steve Jobs and worth checking out.

 

rcurran@independent.ie

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