Inflation Is The Main Issue
Russia’s invasion of Ukraine and the related spike in inflation have upended equity markets in 2022, with an autumn chill descending on investor sentiment after some summer sunshine. Energy suppliers have been a major beneficiary of Putin’s war after Russia turned down Europe’s gas tap. Despite the clampdown on carbon emissions over global warming concerns, coal is temporarily back in vogue as a fuel for power stations. This is good news for Australian mining giant BHP, which saw revenue from its coal mines triple year-on-year to $15.5bn in the year to June 2022.
BHP’s profit margin on its coal sales is 56%, and the activity generated an $8bn profit for BHP compared with a loss the year before. The mining giant also enjoys fancy margins on its copper and iron ore activities, and rewarded shareholders with a final dividend of $8.9bn, bringing the pay-out for the year to $16.5bn, the highest shareholder return since BHP was established in 1885.
BHP is the largest equity holding in Zurich’s 5H5 Asia Pacific Fund. Unlike most life funds, 5H5 Asia Pacific Fund was showing a small annual gain at the end of July. Besides BHP, which accounts for 9.2% of the fund value, the Zurich stock pickers also favour stocks such as Commonwealth Serum Laboratories (CSL), Hong Kong insurer AIA Group, and Woodside Energy Group, Australia’s largest independent oil and gas company.
BHP’s coal mining profit surged in 2021/22
Persuading people to park their savings in any investment fund is a challenge at the moment, given ongoing volatility in stock markets. From June to midAugust, market gains ranked alongside some of the best summertime stock market rallies on record, according to Kevin Quinn, chief investment strategist at New Ireland. However, US Federal Reserve governor Jerome Powell popped the 16% bounce in mid-August, when he cautioned investors that the Fed’s battle with inflation is far from over.
Quinn’s view is that the market uplift is looking very much like a classic bear market rally — a burst of growth based on a glimmer that things were about to change. “The pace of the market recovery illustrates just how fast markets can and will respond to better news and better times,” says Quinn. “For long-term investors, it re-emphasises why remaining invested is so vital to achieving long-term return outcomes.”
Quinn adds that for all asset classes, the path inflation takes will remain the main issue for some time to come. This was evidenced in September, when US markets retreated after August consumer price inflation ticked higher on the previous month. “We must wait a while yet for a newly minted bull market, and a defensive stance in an investment portfolio remains preferable,” is Quinn’s advice to New Ireland customers.
At Irish Life Investment Managers (ILIM), chief investment strategist Lenny McLoughlin believes the outlook for equity markets over the next 12 months is dependent on central bank policy, growth, inflation (both expected and realised) and the evolution of the Russia/Ukraine war. ILIM sees risks in equities as still being skewed to the downside. For share prices to recover, investors will need to believe that policy tightening has peaked, which is unlikely until next year.
“Navigating equity markets is difficult even in a benign environment, but it has become more arduous in the current backdrop, with heightened uncertainty on many issues. As a result, the increased volatility evident this year is likely to continue,” McLoughlin notes, adding that ILIM’s outlook remains positive over the medium to long term, with upside of c.5% per annum expected on a five- to ten-year view.
Borrowing rates are an upward trajectory after the ECB increased its base rates by 75 basis points and promised more hikes in order to tame inflation. The government has bought off public sector unions and employees with a pay deal that raises gross pay by 7.7% over a two-year period
PUBLIC PAY
Public sector workers have been offered a new pay deal to the end of 2023. Subject to ratification, the proposals will see a 3% increase in pay, backdated to 2 February, 2022, a 2% increase from 1 March, 2023, and a further 1.5% from 1 October, 2023. This is in addition to 1% due on 1 October, 2022, agreed under the original Building Momentum agreement.
ECB HIKE
The European Central Bank has raised the three key ECB interest rates by 75 basis points. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility increased to 1.25%, 1.50% and 0.75% respectively on September 14. The ECB signalled that two further rate increases are likely before the end of 2022.
STATE FINANCES
The Exchequer recorded a surplus of €6.3bn year-to-date at the end of August compared with a €6.7bn deficit reported in August 2021, reflecting the winding down of Covid-19 supports. Tax revenue of €49.8bn for the period was 26.3% ahead on last year, driven by strong growth in income tax, VAT and corporation tax. Corporation tax receipts for the first eight months of the year now stand at €11.8bn, which is over €4.8bn ahead of the same period in 2021.
INFLATION
Average consumer price inflation in August fell to 8.7% from 9.1% in the year to July 2022. However, prices rose by 0.2% in the month between July and August. On an annual basis, housing and utilities (+20.3%)
and transport (+14.8%) continue to be main drivers of the Consumer Price Index.
RECORD FINE
The Data Protection Commission has fined Instagram a record €405m following a probe into the social media platform’s handling of children’s data. Meta Platforms, the Instagram parent, said it intends to appeal the fine. The DPC’s investigation decided Instagram was at fault in allowing children aged 13 to 17 to operate business accounts with their phone number and email address.
NEW RUNWAY
Dublin Airport’s new 3,110-metre runway has opened and will deliver additional runway slot capacity for short-haul flights during early morning and late evening peak departure and arrival periods. The runway, built at a cost of €320m, is capable of servicing long-haul aircraft such as the Boeing 747-8 and Airbus A 380-800 aircraft.
FUNDING ROUNDS
Equine MediRecord has closed an investment round believed to be c.€10 million to drive adoption of its equine welfare and anti-doping platform in Europe, North America and the Middle East. Trading company Tincomy Ltd had minimal turnover in 2020, with year-end debtors of just €8,000. The investment is coming from Chicago private equity firm Merit Holdings.
Galway hybrid workplace management platform Ronspot has secured €1.1m in a funding round led by Furthr VC, with contributions from the Halo Business Angel Network and Enterprise Ireland. The company plans to expand headcount from 18 to 28 people over the next two years.
xWave Technologies, a healthtech start-up based at NovaUCD in Dublin, has raised €1.3m from a number of private investors, including €250,000 from Enterprise Ireland. Last year the company launched xRefer, which helps clinicians order the most appropriate radiology scan for their patient.
Digital mortgage broker doddl has announced new investment to fund expansion of activities The funding round includes investment from NSN Investments, controlled by Michael Nolan and Steven Scott, and Andrew Murphy’s Merleview Ltd. Martin Hennessy established doddl in 2004 and the company had turnover of €2m in 2021, a 65% advance on the previous year.
AMAZON CENTRE
Amazon has opened its Irish fulfilment centre at Baldonnell Business Park in west Dublin. The online retailer is now offering delivery seven days a week and one-day delivery to Irish customers. The company will employ 500 people at the 630,000 sq ft warehouse. Amazon also has delivery stations in Rathcoole and Ballycoolin.
FULLY FUNDED
The Social Insurance Fund, which is funded by PRSI contributions, had record income of €12.6bn in 2021. The SIF pays for the contributory state pension, Jobseeker’s Benefit as well as illness and disability benefits. Total employer payments into the SIF in 2021 came to €8.7bn, while PRSI payments from the self-employed increased by 11.3% to €720m.
M&A DEALS
Reward Catering, a food truck specialist founded by the Ward family in Bray in 2018, has been acquired by Swedish company Teqnion. Reward’s products can be found in food courts and other venues and its trailers are generally used as food and beverage outlets. Reward Catering had annual turnover of c.€3.5m in the year to May 2022 and booked net profit of c.€1m.
Briggs Equipment has completed the acquisition of Galway Plant and Tool Hire, one of Ireland’s largest plant, commercial vehicle and tool hire specialists. Operating from eight sites, GPT employs c.90 people and has been trading since 1969. GPT was majority owned by members of the Hughes family, and Yvonne Hackett. Turnover in FY21 was c.€18m and operating profit was c. €2.9m.
Bartra Healthcare has sold a portfolio of nursing homes to Belgian REIT Aedifica for c.€161m. The facilities consist of two new nursing homes in Skerries and Santry, HSE transitional care unit in Beaumont, and forward purchase of Clondalkin Lodge nursing home, which is under development.
Complete Laboratory Solutions, founded by Evelyn O’Toole in in 1994, has brought Phenna Group in Nottingham on board as a shareholder. Established in 1994 in Galway, CLS is the largest privately owned contract laboratory in Ireland.
Glofox, a fitness management platform for the gym and studio sector, has been acquired by ABC Fitness Solutions, based in Little Rock, Arkansas. Glofox was founded by former professional rugby player Conor O’Loughlin and his colleagues Finn Hegarty and Anthony Kelly, and all three will continue to be leaders in the combined business.
American firm Energycap, a pioneer in energy and sustainability enterprise resource planning software, has acquired Wattics, a provider of energy management analytics and monitoring software. Wattics was established in 2011 and its software and analytics tools have helped hundreds of energy professionals to improve sustainability in their operations.
Cybersecurity specialist
Ekco has acquired IT services provider Unity Technology Solutions for an undisclosed sum. Ekco said that the enlarged business will have over 500 staff and that annual revenue will exceed €100m. Unity is a managed cloud services provider specialising in cybersecurity, infrastructure, applications and identity management.
HIGHER EMISSIONS
Ireland’s greenhouse gas emissions increased by 20% in Q1 2022 compared with a year earlier, according to estimates from Eurostat. Across the EU bloc, greenhouse gas emissions in the January to March 2022 period registered a 6% increase on the same period in 2021.
PRET A DAWSON
Pret A Manger has opened its first shop in Ireland, on Dawson Street in Dublin. The store is operated by Carebrook Partnership, a Pret franchise partner in London, with outlets in Camden, Belsize Park and Finchley. Carebrook co-owners Gerard Loughran and Ray McNamara say they intend to grow the Pret estate in Ireland to 20 shops over the next decade.
FDI PROJECTS
Scottish engineering and manufacturing solutions enterprise EnerMech has officially opened a facility in Athlone. The base is home to the company’s first ISOcertified cleanroom, which enables high-purity welding and pipework manufacture, a key element in the semi-conductor, pharmaceutical and food industries. The company plans to bring the total employed in Athlone to 170 over the next three years.
Rahi, a global IT systems integrator whose European sales headquarters have been based in Limerick since 2015, has announced an additional Integration and warehousing facility in
Ballycoolin, Co Dublin, with the addition of 25 new jobs.
Pro Football Focus expects to create 21 remote full-time and 175 seasonal analyst roles in Ireland over the next three years as it diversifies into analytics services for US and European soccer clubs. Founded in the UK in 2009, PFF’s main clients are NFL and NCAA teams in America.