Investors in the Irish stock market have had little to cheer about in the last few years. While the Iseq index enjoyed a strong rally in the first nine months of last year, fears about the health of the banking sector and the recession curbed its performance in the last quarter of 2009.
The stock market has risen nearly 4.5% this year, more than four times the increase in the Dow Jones Stoxx 50, the European benchmark index, and double the increase recorded in the UK's FTSE100, France's CAC40 and Germany's Dax. Helping the market along, analysts said, have been better-than-expected trading performances from the companies reporting indicative trading figures for 2009.
So far, half a dozen companies, including Irish stock market giants CRH and Grafton, have given interim management statements on trading in the latter part of 2009 and their forecasts for the year ahead. While 2009 was horrendous for most companies, market analysts pointed out that several companies have reported that the decline in top-line sales eased towards the end of the year and many were expecting a better 2010.
"Things are not getting worse. And while it's probably too early to say we've turned a corner, you are seeing clear signs of a bottoming out. People aren't expecting this year to be as bad and that's feeding into their comments and the Iseq," one economic commentator says.
As a bellwether for Ireland (and a lot of other countries), building materials giant CRH said that, at group level, sales in the second half of 2009 declined at a slower pace – down 18% compared with a 21% first-half slump. While pre-tax profits will still be down by more than half, the company took an axe to costs and will generate €200m more in savings than it had planned for. That, analysts say, will allow it to use the extra cash to spend on more acquisitions.
"We continue to believe that CRH is very geared to any economic recovery in the main developed economies and management's impressive ongoing cost programme will enhance operating margins in the longer term," said analysts at NCB Stockbrokers in a research note.
Grafton Group, the builders' merchants and owner of the Woodies DIY chain, is also seeing the slump in revenues ease. In Ireland, "like-for-like sales per working day in the second half were down 32% compared to minus 37% in the first half". In the UK, which accounts for about two-thirds of its turnover, it was seeing evidence of the "green shoots" of recovery.
Glanbia said that though most of 2009 was difficult, trading picked up toward the end of the year, and it would meet its target of earnings of 30 cents to 31 cents per share. And while it was cautious about the dairy market in 2010, it expects earnings to grow between 6% and 8%.
Banana importer Fyffes firmed its 2009 profit guidance last week in spite of challenging trading conditions. The company now expects profits for the year of €21m-€22m, compared to an earlier estimate as low as €18m.
Even Aer Lingus, battling to cut costs in the worst travel market in years, said it made a "small" operating profit in the second half of the 2009 financial year once exceptional items related to its restructuring are excluded.
"You could read too much into the numbers if you wanted to be too optimistic, but you can also see from the economic indicators that the worst is behind us," the economist said.
At home, the indicators do show the Irish economy stabilising, with consumer confidence not getting any worse and the government's tax figures coming in on target, albeit heavily down on recent years. That boosts the case of those who believe that growth will return mid-year.
Abroad the recovery has taken a stronger hold, with many European economies exiting recession in the third quarter of the year, while our biggest trading partner, the UK, is also coming out of its worst slump in a generation. That can only be good for corporate earnings this year, the economist said.
And like CRH, many companies will also benefit from having slashed their costs in 2009, which will boost earnings in future years.
"There is no doubt many people got frightened and cut back by more than you would have expected," he said.
For companies that haven't reported yet, analysts pointed to signs that other companies in their sectors are seeing positive trends. For instance, entertainment retailer HMV last week reported strong growth in videogame sales over Christmas, which should be positive for the distributors of games and consoles like DCC. Likewise, sales growth from Northern Foods and Premier Foods should provide investors in Greencore with greater comfort.
Figures released last week by Elan's partner Biogen, on the number of patients signing up to take its multiple sclerosis treatment Tysabri, surprised analysts, who were concerned that new user numbers might be affected by the patients who developed a potentially fatal disease when using the drug.
It will be another month or so before most of the bigger companies on the Iseq report their 2009 results and provide guidance for 2010. After the battering share prices and earnings have taken in the past few years, investors will be sceptical about calling an end to the slump, according to one analyst.
After all, in the first nine months of 2009, the Iseq surged 43% ahead, exceeding gains in other markets despite the deepening recession. But in the final quarter it dropped 11%, mainly because of bank stocks that gave up gains on concerns for their capital levels and the setting up of Nama.
Even with that in mind, investors may be glad to take some comfort from the early signals.