A Review of Irish ADRs’ Performance YTD

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The table below lists the Year-To-Date (YTD) performance of the exchange-listed Irish ADRs:

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Similar to Anglo Irish Bank investors, Allied Irish Banks(AIB) and Bank of Ireland(IRE) common investors may be wiped out if Ireland nationalizes these beaten-down banks.CRH (CRH) is in the construction and materials industry. So it can be avoided until the dust settles on the current crisis. Among European discount-carriers Ryanair (RYAAY) operates a vast network and has an efficient management team.

Elan (ELN) used to be a high flier during the dot era but later crashed hard and now trades in the single digits. Another stock worth keeping an eye on is the Irish beverage maker C&C Group plc (CCGGY). C&C is a major leader in the cider market with its Mangers and Bulmers brand.

The New Ireland Fund (IRL), a closed-end fund closed at $6.54 yesterday. The fund used to trade for $35+ in early 2007. It is interesting to note that despite The Wall Street Journal calling Ireland as one of the countries having “the most innovative financial industries”, Irish lenders have a hard time staying afloat. The Luck of the Irish did not work so well for investors in Irish bank ADRs as well.

The Top 10 Global Biopharmaceutical Companies by Sales

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A few days ago we reviewed the top 20 global pharmaceutical companies by sales. In this post, lets take a quick look at the top 10 global biopharmaceutical firms based on 2009 revenues.

The table below lists the  Top 10 Global Biopharmaceutical Companies by Sales. These firms were selected based on the following rule:

  • The company is considered a biopharma if more than half of its drug revenues — not royalties — come from large-molecule drugs and vaccines.

insulin.jpgThis year Roche/Genentech has become the world’s top biopharma company. This is the first change at the top position since this list was published for the last 10 years. In March 2009, the Swiss drug company Roche agreed to buy Genentech for $46.8 Billion. This pushed Roche/Genentech to the number one spot.

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Source: Contract Pharma

Note: * CSL’s financial year ran from July 1, 2008 to June 30, 2009

Other than Roche/Genentech the rest of the list above is the same as last year’s. According to the report this “is both a sign of the stability among biopharmas and a sign of the difficulty in commercializing new biologics without a major partner.”

When the first list was published 10 years ago, Amgen (AMGN) was the top biopharma company with revuenues of $3.2 billion at that time. Now there are eight companies with revenues higher than that. This shows the tremendous growth and the potential for biopharmas.

Baxter BioSciences is a unit of the Illinois-based global healthcare giant Baxter(BAX) group. Merck Serono is a division of Merck KGaA of Germany. Australia-based CSL is a leader in the development and manufacture of vaccines and plasma protein biotherapies with 10,000 employees working in 27 countries.

Debt Due over the 20 Years From Ireland, Portugal and Spain

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The Irish government is negotiating a $110 billion bailout deal with the IMF and EU. Today Ireland unveiled a four-year austerity plan. From an Bloomberg article:

“Ireland’s government said it will cut spending by about 20 percent and raise taxes over the next four years as talks on a bailout of the country near conclusion.Welfare cuts of 2.8 billion euros ($3.8 billion) and income tax increases of 1.9 billion euros are among the steps planned to narrow the budget deficit to 3 percent of gross domestic product by the end of 2014. The shortfall will be 12 percent of GDP this year, or 32 percent including a banking rescue.

“Those who can pay the most will pay most, but no group can be sheltered,” the government said in a report published in Dublin today. “Postponing these measures will lead to great burdens in the future for those who can bear them.””

Ireland plans to maintain the 12.5% corporate tax rate but increase various taxes for consumers. In addition welfare expenditures will be cut further. The low corporate tax rate in Europe attracts many multinationals such as Google (GOOG) who use Ireland as a tax haven. Ireland kept the low corporate tax rate since it allowed Ireland to become as one of the global financial innovation centers during the credit boom years. The financial sector dominated the Irish economy. Despite the credit crisis and the bailout, the Irish government is fully supportive of the financial industry in order to maintain Ireland as a major global financial center.

The bailout package is very favorable to bondholders and other creditors as their debt would be repaid in full. However ordinary citizens will take a big hit in terms of reduces public benefits and higher taxes. Since the pain is not equally shared, some economists are suggesting that Ireland should default on its debt. From a recent Journal piece:

“As another European country edges toward a multibillion-dollar bailout, a number of economists say there is only one way to make creditors share the pain: default.

In Dublin, officials from the International Monetary Fund, European Union and United Kingdom are negotiating a rescue package that is likely to require the Irish government to further squeeze pensions and paychecks but pay off bondholders of Irish banks, whose debts the government guaranteed.

Such a lopsided outcome—which has been repeated since the Latin America debt crises of the 1980s—enrages many voters and signals to investors that there is no price to pay for risky lending because international institutions will always bail them out.

Instead, say economists, lenders should be required to take hits on their investments as a way to reduce a government’s bills and to force lenders to be more careful about where to invest their money next time because they will realize the IMF and others won’t guarantee they will be paid in full.

“The most important effect is that (a country’s) debts won’t build up so much,” said Harvard economist Kenneth Rogoff, who has chronicled centuries of sovereign defaults.”

The graphic below shows the debt issued by Ireland, Portugal and Spain that must be repaid or refinanced over the next 20 years:

Debt-Due-Ireland-Portgula-Spain

Last year Portugal  had a budget deficit equal to 9.3% of its GDP. But the country aims to reduce it slowly over the next few years. As the Irish bailout plan takes shape, some investors are worried that Portugal may be the next candidate for a bailout. Though currently Spain is in a much better position, Spain may follow Portugal as well.

Coal Imports are Booming in Asia

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The demand for coal is rising in Asia especially in China and India. As a result, developed countries that have an abundance of coal deposits are increasing their exports to Asia. In addition, mining companies in Australia, U.S. and others are exploring the possibility of opening new mines to take advantage of the growing demand.

The following graphic illustrates the booming business in coal:

Click to enlarge

Coal-Trade-Global

Source: The New York Times

From a recent article titled “Nations That Debate Coal Use Export It to Feed China’s Need” in the Times:

“Vic Svec, senior vice president of Peabody Energy, the world’s largest private coal company, said it was “planning to send larger and larger amounts of coal” to China.

“Coal is the fastest-growing fuel in the world and will continue to be largely driven by the enormous appetite for energy in Asia,” he said.

The conflict between environmental and trade concerns is gaining momentum in the United States and Canada as well as Australia.

Last year, the United States exported only 2,714 tons of coal to China, according to the United States Energy Information Administration. Yet that figure soared to 2.9 million tons in the first six months of this year alone — huge growth, though still a minuscule fraction of China’s coal imports.

New mines are planned to expand the market further.”

A few other key points noted in the article are:

  • Seaborne trade in thermal coal which is used in power generation rose to about 690 million tons this year, up from 385 million in 2001.
  • The price of coal rose to $60 from $40 a ton five years ago to a high of $200 in 2008.
  • For the first time China became a net importer of coal last year.
  • Since China’s factories are located on the coast but its coal mines are located inland, it is actually cheaper to ship coal from North America, Australia or even South America to Chinese factories.
  • Chinese demand for coal has been a lifesaver for Colombia  and in Australian the mining industry is experiencing a big boon.

Some of the major U.S. coal producing companies are: Peabody Energy Corp. (BTU), Consol Energy Inc. (CNX),  Alpha Natural Resources Inc. (ANR), Arch Coal Inc. (ACI), Walter Energy (WLT) and Massey Energy Co. (MEE). Peabody energy is the world’s largest private coal producer. Two of the coal ETFs are Market Vectors-Coal ETF (KOL) and PowerShares Global Coal Portfolio ETF (PKOL).

U.S. Recovery Depends on the Domestic Service Economy and Not on Exports

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The size of the U.S. economy is about $14 Trillion. Consumer spending accounts for nearly 70% of the economy as U.S. is still a consumer-driven economy.  Unlike other countries, the services sector accounts for the most part of economy. The U.S. exports billions of dollars worth of goods and services to other countries. However exports are still a small component of the GDP as shown in the graphic below. Hence U.S. economic recovery is mostly dependent on the growth of the domestic services economy.With high unemployment rates and lending to small businesses tight, the high reliance on domestic growth is a major weakness for the U.S. economy. So unless domestic private consumption increases strongly the recovery will not be robust.

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US-Exports-Comaprison

Source: Bloomberg BusinessWeek