Morning Wrap Today’s Newsflow US Building Materials

Morning Wrap
Today’s Newsflow
Select headline to navigate to article
Equity Research
20 Oct 2014
Upcoming Events
US Building Materials Another weak month for highway contract
awards
Company Events
Bank of Ireland SME lending at BOI up 18% for year to end
September
23-Oct
21-Oct
22-Oct
William Hill; Q3 2014 Results
Heineken; Q3 2014 Results
Playtech; Q3 2014 Results
Ladbrokes; Q3 2014 Results
Norwegian Air Shuttle; Q3 2014 Results
St Gobain; Q3 2014 Results
Tesco; Q2 2015 Results
European Airlines Lufthansa pilots step up scale of strike action
Wolseley Speculation over £100m deal in UK
Origin Enterprises Nutreco to be acquired for 42% premium
Dalata Hotel Group Through to final round for Moran and Bewley’s
hotels
Economic View Housebuilding commencements up 40% from a
very low base
Fyffes Cutrale-Safra urges Chiquita shareholders to vote against
merger
Economic Events
Ireland
22-Oct
Property Prices YoY Sep
United Kingdom
22-Oct
Bank of England Minutes
23-Oct
Markit Eurozone Manufacturing PMI
Retail Sales Ex Auto YoY Sep
Markit Eurozone Composite PMI
Markit Eurozone Services PMI
BBA Loans for House Purchase Sep
24-Oct
GDP YoY 3Q
United States
22-Oct
CPI YoY Sep
23-Oct
Markit US Manufacturing PMI
Europe
Goodbody Capital Markets
Equity Research +353 1 6419221
Equity Sales +353 1 6670222
Bloomberg GDSE<GO>
Goodbody Stockbrokers (trading as Goodbody) is regulated by the Central Bank of Ireland. For the attention of US clients of Goodbody
Securities Inc, this third-party research report has been produced by our affiliate Goodbody Stockbrokers. Please see the end of this
report for analyst certifications and other important disclosures.
Goodbody Morning Wrap
US Building Materials Another weak month for highway contract awards
Data released by ARTBA (America Road Transportation Builders Association) shows that
September was another weak month for contract awards with highways down 9% yoy. This
is the ninth consecutive month of decline and leaves the ytd figure at -8% yoy. Contract
awards for bridges were also weak at -7% in September which leaves the ytd figure at 27%.
In our view the weak contract awards data reflects uncertainty over Federal
funding given that the multi-year programme is now operating under an eight
Robert Eason
+353-1-641 9271
[email protected]
David O’Brien
+353-1-641 9230
david.a.o’[email protected]
Sarah Reilly
+353-1-641 6080
[email protected]
month extension (to end of May-15). Given the potential risk that this has on
forecasts we will be interested in the comments from companies in the upcoming
results season. We estimate that 45% of CRH’s US business is exposed to
infrastructure.
Home…
Bank of Ireland SME lending at BOI up 18% for year to end September
Bank of Ireland has indicated that it has approved €3.2bn of loans to the SME sector in the
first nine months of the year, up 18% yoy. The figure excludes restructures of debt. The
number of applications was up 8% yoy, with an 87% approval rate. BOI has highlighted that
asset finance was particularly strong in the period.
BOI reported that lending in its Irish SME business was up 15% in H1, with the
loan book starting to stabilise in Q2 (new lending matches redemptions). Whilst
approvals might not completely match drawdowns, the 18% growth rate
mentioned in BOI’s release to end September hints at acceleration in the rate of
growth into Q3. Our forecasts show the rate of net deleveraging at the bank slow
from €2.4bn in H1 to c.€1bn in H2.
Home…
Page 2
20 Oct. 14
Recommendation: Buy
Closing Price: €0.29
Eamonn Hughes
+353-1-641 9442
[email protected]
Goodbody Morning Wrap
European Airlines Lufthansa pilots step up scale of strike action
Lufthansa pilots' union Vereinigung Cockpit announced plans to conduct a 35-hour strike
between 13:00 CEST today and 23:59 tomorrow. The union is aiming for a new collective
agreement for all employees of the cockpit crew.
The strike period was initially set to target short haul A320, 737, and Embraer aircraft, with
1450 services being cancelled and more than 200,000 passengers to be affected, but has
Mark Simpson
+353-1-641 0478
[email protected]
Jack Diskin
+353-1-641 9193
[email protected]
now been extended to include its long haul A380, A340, A330 and 747 services. While the
loss of short haul services is damaging, the loss of long haul services carries an even greater
cost impact.
This is the seventh pilot strike (and largest) since April, when 3,800 flights were
affected (on short haul and long haul) which cost the carrier c.€60m. That impact
to revenues suffered in April was one of the core reasons behind its profit warning
in June. Lufthansa is already seeing persistent operational pressures from LCCs on
short haul, and from overcapacity and Gulf competition on its long haul network.
Given this announcement, there is a strong chance of further revisions to the
downside for its full year guidance, and an erosion of its current market position.
Home…
Wolseley Speculation over £100m deal in UK
Over the weekend there was press speculation in the UK that Wolseley is interested in
making a possible £100m bid for Better Bathrooms, an online and high street retailer. For
the 12 months to the end of Mar-13 (last period that accounts are filed for) the business had
sales of £31m (+11% yoy) and profits of £4m. We estimate that profits could now be over
£5m.
Closing Price: £31.34
Robert Eason
+353-1-641 9271
[email protected]
Following the successful launch of a B2C ecommerce business in the US, Wolseley
management on the recent results conference call indicated that it wanted to grow a similar
business in the UK. Currently this was being done organically and it would have to be patient
seeking out opportunities. However, the market is likely to be surprised with the speculation
over the weekend given: (i) It was only in May-12 that it sold Bathstore (£66m of sales) for
£15m with management citing that the “disposal is in line with our strategy of focusing on
our core operations”. However, this was more a high-street business; and (ii) A consideration
of £100m would represent a very high multiple.
While the potential multiple being suggested for Better Bathrooms looks excessive,
strategically we view such a deal as making sense. As it is more an online business
it would significantly increase Wolseley’s multi-channel offering in the UK, a stated
target of management. However, we don’t know if the market will be so forgiving,
especially if a multiple of 20x is paid.
Home…
Page 3
Recommendation: Buy
20 Oct. 14
Goodbody Morning Wrap
Origin Enterprises Nutreco to be acquired for 42% premium
Nutreco, the Dutch based international animal feeds business, is to be acquired by Dutch
trading company, SHV. Nutreco has 100 production facilities in over 30 countries. The allcash offer price represents a 42% premium to Friday’s closing price and a prospective PER of
16.5x. The Board of Nutreco has unanimously recommended the offer.
Animal feeds represents a modest portion of Origin’s profits (c.10% of profits
Recommendation: Buy
Closing Price: €7.70
Liam Igoe
+353-1-641 9450
[email protected]
including associates) but the valuation placed on Nutreco would represent a
substantial premium to Origin’s current rating and our valuation multiple applied to
its animal feed operations.
Home…
Dalata Hotel Group Through to final round for Moran and Bewley’s hotels
Reports in this weekend’s papers indicate Dalata is amongst the remaining bidders on the
Moran and Bewley’s Hotel Group. The other bidders for the 10 hotels include US private
equity firm Starwood Capital Group and Marathon Asset Management, while the final price is
expected to be around the €450m mark. It is worth noting that a number of significant
players have not succeeded in making it through to the final stages, including, property
group London & Regional and a partnership between Goldman Sachs and Tifco. Goldman’s
have already acquired the loans of hotel operator Tifco (operator of a number of Crown Plaza
hotels and Holidays Inns) and last week acquired the remainder of Project Nadal from Ulster
Bank.
We welcome the news that Dalata remains in the process given the competitive
market. While it may eventually only acquire part of the portfolio we believe it will
remain amongst the frontrunners for any portfolios that come to market over the
coming months.
Home…
Page 4
20 Oct. 14
Recommendation: Buy
Closing Price: €2.85
Colm Foley
+353-1-641 6042
[email protected]
Goodbody Morning Wrap
Economic View Housebuilding commencements up 40% from a very low base
Spurred by the rise in prices, new residential construction activity has begun its delayed
recovery in earnest in 2014. The latest information on this front comes from Link2Plans this
morning, which shows that residential commencements grew by 40% in the first eight
Dermot O’Leary
+353-1-641 9167
[email protected]
months of the year. This represents a slowdown on the growth seen earlier in the year, but
this was to be expected given the surge seen prior to the introduction of new building
regulations at the start of March.
Unsurprisingly, growth in the number of residential developments is responsible for the
recovery thus far, with the share of one-off construction projects falling as a result. In the
first eight months of the year, 290 residential developments have commenced, up from a low
of 70 in 2011. Regionally, there is a large spread of performances, ranging from +115% in
Monaghan to -20% in Longford. However, the numbers in these areas of the country are
extremely small. The same can be said for the country as a whole, with the total number of
commencements standing at c.5,000 in the first eight months of 2014.
It is undoubtedly positive that new construction activity is finally picking up.
However, given our estimates of medium-term demand of c.30,000, there is clearly
a long way to go to normality. Given this reality, we continue to believe that lack of
suitable supply in the appropriate areas will lead to a further increase in prices
over the coming 12 months, despite the negative demand effects of the recent
Central Bank macro-prudential measures.
Home…
Fyffes Cutrale-Safra urges Chiquita shareholders to vote against merger
Following the Chiquita Board’s decision to reject Cutrale-Safra’s $14 definitive offer, the
Brazilian partners have issued a response. It continues to suggest that its offer is superior to
the Fyffes merger and urges Chiquita shareholders to vote against the proposal due on
October 24th. The offer will be binding through to October 26th which will give Chiquita the
opportunity to accept the bid should shareholders vote down the Fyffes merger.
We continue to believe the Fyffes merger offers greater value to Chiquita
shareholders. For Fyffes, we see the recent sell-off as an attractive entry point for
the stock on a standalone basis, while the proposed merger with Chiquita offers
significant upside.
Home…
Page 5
20 Oct. 14
Recommendation: Buy
Closing Price: €0.99
Patrick Higgins
+353-1-641 0403
[email protected]
Goodbody Morning Wrap
Market Data
Top 10 Covered Companies
Company
Price
Mkt Cap
Absolute
Relative to European Sector
P/E
(LC)
(LCM)
1 Day
1 Week
1 Mth
Ytd
1 Day
1 Week
1 Mth
Ytd
2014f
2015f
0.10
53,142
5.2
-2.9
-13.6
-8.9
2.3
-2.0
-6.6
-6.2
77.2
87.4
CRH
16.56
12,306
4.4
0.7
-7.8
-9.5
1.5
1.7
-0.3
-6.8
19.2
14.7
Wolseley
31.34
8,354
2.2
0.3
-4.5
-8.5
0.0
0.5
3.3
-1.1
17.0
14.1
Ryanair
6.97
9,646
2.1
3.0
-5.0
11.2
-0.7
4.0
2.7
14.5
17.9
13.9
Bank of Ireland
0.29
9,294
4.4
2.5
-9.7
13.9
1.5
3.4
-2.5
17.3
19.3
13.5
51.31
9,020
3.4
-1.9
-6.7
1.6
0.6
-1.0
0.8
4.7
18.5
16.6
3.50
6,501
2.2
7.7
-6.7
-12.7
-0.6
8.7
0.8
-10.1
n/m
n/m
14.09
5,568
0.4
4.5
5.3
-8.3
-1.7
4.8
13.9
-0.9
n/m
n/m
Mondi
9.92
4,817
3.8
3.7
-8.7
-5.2
0.9
4.7
-1.3
-2.3
11.8
11.3
Tullow Oil
5.24
4,768
8.3
-0.4
-23.1
-38.7
5.5
-0.6
-15.7
-31.9
9.6
12.6
AIB Group
Kerry Group
IAG
easyJet
ISEQ performance
Indices
Price
1 Day
1 Week
1 Mth
Ytd
5,200
ISEQ
%
4,487.62
3.22
-0.05
-7.25
-1.14
5,100
FTSE 100
6,310.29
1.85
-0.47
-6.94
-6.50
5,000
DAX 30
8,850.27
3.12
0.70
-8.40
-7.35
CAC 40
4,033.18
2.92
-0.99
-8.99
-6.12
FTSE Eurofirst 300
1,280.17
2.76
-0.99
-7.57
-2.75
4,600
Nasdaq
4,258.44
0.97
-0.42
-6.66
1.96
4,500
S&P 500
1,886.76
1.29
-1.02
-5.74
2.08
4,400
Dow Jones
16,380.41
1.63
-0.99
-4.53
-1.18
Nikkei 225
14,532.51
-1.40
-5.02
-8.54
-10.80
Px 1 day Px 1 Week
4,900
4,800
4,700
4,300
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jul-14
Oct-14
Jul-14
Oct-14
Exchange Rates
Px Dec13
Avg Ytd
Stg/€
Current
0.793
0.798
0.788
0.832
0.811
US$/€
1.277
1.278
1.263
1.378
1.350
CHF/€
JPY/€
STOXX 600 performance
1.207
1.207
1.210
1.225
1.217
350
136.185
135.595
136.253
144.829
139.353
345
340
Bonds
335
330
Yield
1 Day
Yld 1 Wk
Yld 1 Mth
Yld 3 Mth
325
US 2 Yr
0.37
0.02
-0.06
-0.20
-0.08
320
US 10 Yr
2.20
0.04
-0.09
-0.42
-0.25
315
UK 2 Yr
0.60
0.05
0.04
-0.09
-0.22
UK 10 Yr
2.19
0.10
-0.02
-0.33
-0.39
BD 2 Yr
310
-0.06
-0.01
-0.01
0.01
-0.08
BD 10 Yr
0.82
0.04
-0.03
-0.19
-0.33
Irish 10 Yr
1.74
-0.09
0.04
-0.11
-0.52
Commodities
%
305
Oct-13
1 day
5 day
1 Mth
1 Yr
86.16
2.00
-4.49
-12.94
-21.03
Gasoline (NYM $/Gal)
2.23
0.99
-1.10
-13.10
-15.68
Heat Oil (NYM $/Gal)
2.50
1.11
-2.45
-9.02
-16.47
16,000
15,500
Nat.Gas
Gold $/oz
Silver $/ozt
Copper U$/MT
Wheat $/BU
Source : FactSet
Page 6
20 Oct. 14
Apr-14
FTSE 250 performance
Current
Brent (ICE $/bbl)
Jan-14
3.77
-0.79
-2.41
-6.15
0.24
1,234.25
-0.28
1.25
-0.14
-6.44
17.36
-0.57
0.58
-6.82
-20.07
6,629.00
-0.02
-1.02
-4.74
-7.57
5.16
-0.19
3.51
3.36
-24.78
17,000
16,500
15,000
14,500
14,000
Oct-13
Jan-14
Apr-14
Goodbody Morning Wrap
Issuer & Analyst Disclosures
Analyst Certification
The named Research Analyst certifies that: (1) All of the views expressed in this research report accurately reflect my personal views about
any and all of the subject securities and issuers. (2) No part of my remuneration was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed by me in this report.
Regulatory Information
Goodbody Stockbrokers, trading as Goodbody, is regulated by the Central Bank of Ireland. Goodbody is a member of the Irish Stock
Exchange and the London Stock Exchange. Goodbody is a member of the FEXCO group of companies. This publication has been approved by
Goodbody Stockbrokers. The information has been taken from sources we believe to be reliable, we do not guarantee their accuracy or
completeness and any such information may be incomplete or condensed. All opinions and estimates constitute best judgement at the time
of publication and are subject to change without notice. The information, tools and material presented in this document are provided to you
for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for
securities.
Conflicts of Interest
Goodbody Stockbrokers has procedures and policies in place to identify and manage any potential conflicts of interest that arise in
connection with its research business. Goodbody Stockbrokers’ analysts and other staff who are involved in the preparation and
dissemination of research operate and have a management reporting line that is independent to its Corporate Finance business. Information
barriers are in place between the Corporate Finance arm and the Research arm to ensure that any confidential and or price sensitive
information is handled in an appropriate manner.
Our Investment Research Conflicts of Interest Policy is available at Conflicts of Interest
Investors should be aware, that, where appropriate, research may be disclosed to the issuer(s) in advance of publication in order to correct
factual inaccuracies only and not to materially amend the research in any way. Goodbody Stockbrokers is satisfied that it has operational
procedures in place, which ensure that such disclosures will not compromise the report’s objectivity.
Goodbody Stockbrokers and its associated companies may from time to time perform investment banking or corporate finance services,
including underwriting, managing or advising on a public offering for, or solicit business from any company recommended in this report.
Goodbody Stockbrokers may have acted, in the past 12 months, as lead manager / co-lead manager in the securities of any company
named in this report.
Goodbody is corporate broker to Hibernia REIT plc and a joint bookrunner in relation to the current offer.
Goodbody Stockbrokers acts as corporate broker to AIB Group, Datalex, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hibernia
REIT, ICG, Kingspan, Origin Enterprises, Paddy Power, UDG Healthcare, and UTV Media
Goodbody Stockbrokers is a registered market maker in the majority of companies listed on the Irish Stock Exchange and their equivalent
on the London Stock Exchange and may hold positions in any of the companies mentioned in this report from time to time. A complete list of
the companies that Goodbody Stockbrokers makes a market in is available at Regulatory Disclosures
Page 7
20 Oct. 14
Goodbody Morning Wrap
Other disclosures
We would like to inform you that Robert Eason holds shares in Kingspan
We would like to inform you that Robert Eason holds shares in SIG
A description of this company is available at Company Descriptions
All prices used in this report are as at close of business of the previous working day unless otherwise indicated.
A summary of our standard valuation methods are available at Valuation Methodologies
A summary of share price recommendations and whether material investment banking services have been provided to these companies is
available at Regulatory Disclosures
Other important disclosures are available at Regulatory Disclosures
Goodbody Stockbrokers updates its recommendations on a regular basis. A breakdown of all recommendations provided by Goodbody
Stockbrokers is available at Regulatory Disclosures Where Goodbody Stockbrokers has provided investment banking services to an issuer,
details of the proportion of buys, adds, reduces and sells attributed to that issuer will also be included. This is updated on a quarterly basis.
The date on which stock recommendations were first released for all stocks mentioned in this report are available at
http://www.goodbody.ie/research_disclosures/regulatorydisclosures/index.html. If a different recommendation has been made in the
previous twelve months, this will also be disclosed here.
Recommendation Definitions
Goodbody Stockbrokers uses the terms “Buy”, “Sell” and “Hold. The term “Buy” means that the analyst expects the security to appreciate in
excess of 10% over a twelve month period. The term “Sell” means that the security is expected to decline in excess of 10% over the next
twelve months. The term “Hold” means that the analyst expects the security to neither appreciate more than 10%, or depreciate more than
10% over the next twelve months.
On 26th November, 2012, the terms “Add” and “Reduce” were removed from the Recommendation Definitions and both were replaced with
the “Hold” recommendation. Any Previous Recommendation that refers to either an “Add” means that the analyst expected the security to
appreciate by up to 15% over a twelve month period. Any Previous Recommendation to “Reduce” means that the analyst expected the
security to decline by up to 15% over the next twelve months.
In the event that a stock is delisted the firm will automatically cease coverage. If however the firm ceases to cover a stock for any other
reason the firm will disclose this fact.
Distribution of research to clients of Goodbody Securities Inc (GSI) in the US
GSI distributes third-party research produced by its affiliate, Goodbody Stockbrokers
GSI is a member of FINRA and SIPC
GSI does not act as a market-maker.
This information was current as of the last business day of the month preceding the date of the report.
An affiliate of GSI may have acted, in the past 12 months, as lead manager/co-lead manager of a publicly disclosed offer of the securities in
this company. Investors should be aware that an affiliate of GSI may have provided investment banking or non-investment-banking services
to, and received compensation from this company in the past 12 months or may provide such services in the next three months. The term
investment banking services includes acting as broker as well as the provision of corporate finance services, such as underwriting and
managing or advising on a public offer. All transactions by US persons involving securities of companies discussed in this report are to be
effected through GSI.
Disclaimer
While all reasonable care has been taken in the production and dissemination of this report it is not to be relied upon in
substitution for the exercise of independent judgement. Nothing in this report constitutes investment, legal, accounting or tax
advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or
otherwise constitutes a personal recommendation to you.
Private customers having access, should not act upon it in anyway but should consult with their independent professional
advisors. The price, value and income of certain investments may rise or may be subject to sudden and large falls in value.
You may not recover the total amount originally invested. Past performance should not be taken as an indication or guarantee
of future performance; neither should simulated performance. The value of securities may be subject to exchange rate
fluctuation that may have a positive or adverse effect on the price or income of such securities.
All material presented in this report, unless specifically indicated otherwise is copyright to Goodbody Stockbrokers. None of the material, nor
its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express
written permission of Goodbody Stockbrokers.
Goodbody, Ballsbridge Park, Ballsbridge, Dublin 4, Ireland
T
(+353 1) 6670400
W
www.goodbody.ie
E
[email protected]
Page 8
20 Oct. 14