Agenda

Digicel does not desperately need the money. It does not face serious redemption on its $6.5bn in low-priced debt for a number of years. Yet it has run out of rope. It is so highly leveraged that the debt markets are effectively off limits. It needs to tap the equity markets to fund growth. Up to last week, it looked as though O’Brien would be pushing an open door.

The psychology has changed and, in a harsher light, Digicel may look less attractive. All the company’s revenues are denominated in local, emerging market currencies. All its debt is denominated in dollars. Take Papua New Guinea, Digicel’s largest market by revenue. Some 17% of Digicel revenues are in the Papua New Guinea kina. The local economy relies on commodities, specifically copper, which is susceptible to a slowdown in Chinese manufacturing. Digicel could face a double whammy of a slowing Papua New Guinea economy — and lower revenues — and a potential devaluation which would further depress earnings.

O’Brien will maintain that Digicel is still a compelling, long-term story. It is a strong brand, operating in emerging markets with real growth potential. Yet investors will want a secondary market for the shares post IPO, and that can be difficult when volatility abounds.

The big question is whether Digicel can achieve the kind of enterprise valuation attributed to Carlos Slim’s America Movil, a magical eight times earnings which would point to a $10bn valuation, especially when markets are so hostile. Hiring seven underwriters, from Citigroup to Davy, suggests that O’Brien is taking no chances. That’s a lot of expensive suits suckling on one deal. Even if the offering is a success, it will be an extremely expensive one.

Digicel could postpone the IPO. Yet the longer the delay, the slower the move into much needed new revenue streams, and possibly a fall in value. Now is the time.

Circus act at FBD

Is it crisis or chaos at FBD? Chief executive Andrew Langford stepped down from the general insurer late last month and was replaced on an interim basis by Fiona Muldoon, who joined in January to replace chief financial officer Cathal O’Caoimh, who retired. Now O’Caoimh is back to replace Muldoon on an interim basis as CFO, seemingly on the instruction of the Central Bank, and Langford is apparently still working for FBD on a consultancy basis. Crisis? Chaos? Circus?

The other interims of note were of course the interim results released last week, which included a €96m loss and, perhaps more importantly, a strategic repositioning of the insurer by its interim chief executive. Muldoon plans to shut down nononsense.ie, sack 100 workers and save €7m. FBD does not want to insure young drivers and intends to refocus on its core farmer customer base, who will be spared the worst excess of any premium increases.

Muldoon is also selling an investment in the insurer’s leisure and hotel interests to Farmer Business Developments, a farmer-owned plc and the insurer’s largest shareholder.

This is quite a shift for an interim chief executive to take, like a caretaker manager selling a football club’s striker, holding midfielder and goalkeeper. Muldoon has a re-insurance and regulatory background; she has never run a general insurer. Given her actions, she looks odds-on to run this one.

To cap a rather ignominious week, the insurer was forced to issue a correction to its results: its solvency margin was 179%, not 197% as previously printed.

Investors are bewildered. The FBD board is quite patently overpopulated with representatives of Farmer Business Development, and not exactly loaded with industry experience. It did appoint Ruairi O’Flynn, a life assurance industry veteran in May 2015. O’Flynn worked with Muldoon at Canada Life during her brief stint there in 2011.

Irish Farmers Journal columnist Matt Dempsey, a respected voice within the farming community, has suggested that Farmers Business Developments plc should buy out the insurer. The remaining 75% of stock it does not own is valued at €150m. This time last year the shares were worth €384m.

The Central Bank would probably prefer to see FBD pass into multinational ownership, swept up in the wave of consolidation which last week saw Zurich edge closer to buying RSA. Either was probably the most likely buyer of FBD. Zurich’s combined share would rule out such a move. So the struggle will continue.

Pain of glass

The CRH chief executive Albert Manifold has pushed the boat out in his 20 months in charge. Buying up the cast-offs from the Holcim-Lafarge merger, all $6.5bn of them, hardly sated his appetite. Shelling out a further $1.3bn for CR Laurence (CRL), an American glazing company, has pushed the group right to the edge of its borrowings tolerance.

CRH courted CRL for a decade and for Manifold this was an opportunity the company had to take. It is paying a very rich 11 times earnings before interest tax depreciation and amortisation.

“We like to sell businesses for that; we don’t like to buy businesses for that,” Manifold admitted last week.

However, he is confident that synergies of $40m a year, when integrating CRL with CRH’s own glazing business, will make the deal pay. CRL services 60,000 glaziers and glass shops across America, compared with CRH’s 15,000 customers. It processes 7,000 orders a day, and delivers within 24-48 hours. Some 60% of its orders come over the internet. It has grown earnings at an average of 10% a year since 2010, a time when construction in the US was in a slump.

It’s a great business, but is it worth threatening CRH’s carefully nurtured investment grade status with debt rating agencies? No fear, says chief financial officer Maeve Carton.

In the next year-and-a-half, a fully locked and loaded CRH plans to generate some €2.5bn in cash operations and disposals to bring down debt to traditional levels.