Morning Wrap

Morning Wrap
Today’s Newsflow
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Equity Research
Upcoming Events
Irish Economic View NTMA to sell 7-year debt at record low
Company Events
interest rate today
07-Jan
Irish Economic View IDA reports another strong year for FDI in
2014
FBD Holdings Setting the scene ahead of FY14 results; Cutting
estimates for FY15 and FY16
07 Jan 2015
08-Jan
12-Jan
13-Jan
14-Jan
Aer Lingus; Traffic stats - Dec 2014
easyJet; Traffic stats - Dec 2014
Air France-KLM; Traffic stats - Dec 2014
Grafton Group; Trading Statement
IAG; Traffic stats - Dec 2015
Lufthansa; Traffic stats - Dec 2014
Greene King; AGM
SIG; Trading Statement
C & C Group; Q3 2015 IMS
Premier Oil; Q4 2014 trading update
UK Builders Merchants Positive trends into Q4 from
Housebuilders, Topps Tiles and Marshalls
Greencore Sainsbury sees strong Q3 convenience sales growth
First Derivatives Launches new product targetting digital marketing
Economic Events
sector
Ireland
07-Jan
08-Jan
European Building Materials French cement volumes remain
weak
Escher Group Trading update notes downgrade to 2014
CPI (M/M)
Unemployment Rate Dec
United Kingdom
08-Jan
BoE rate announcement
09-Jan
Industrial Production Nov
13-Jan
CPI Dec
United States
09-Jan
Manufacturing Payrolls
Europe
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Goodbody Morning Wrap
Irish Economic View NTMA to sell 7-year debt at record low interest rate today
With yields at record low levels, the NTMA is to make its first foray into the bond markets of
2015 this morning. It is expected to sell €3bn-€4bn of a new 7-year bond by way of a
syndicated transaction. Based on the current pricing on the Irish yield curve, the yield could
Dermot O’Leary
+353-1-641 9167
[email protected]
come in as low as 0.85%.
Assuming that the NTMA raised €4bn today, this would go a significant way to meeting its
2015 funding target of €12bn-€15bn very early in the year. While the State has cash buffers
of €17bn and bond redemptions this year are just €2.2bn, the monies raised this year will
also go towards financing the expected exchequer deficit of €7bn as well as the €9bn
refinancing of IMF loans.
Given that there are no bonds outstanding in either 2021 or 2022, it does make some sense
to sell debt in this maturity. However, it is still our preference that the NTMA takes
advantage of the low interest rate environment by locking these low costs well into the
future. In November, the NTMA managed to sell a 15-year bond at a yield of 2.49%. That
bond currently has a yield of 1.79%. There is no reason why the NTMA could not have
tapped this bond once again or even took the opportunity to sell a 20-year bond, given
similar sales by other European sovereigns over recent months.
Ireland is moving early to meet part of its funding requirement for 2015. We expect
the sale to be met with strong demand once again. Given that it will go partly
towards repaying expensive IMF loans, the financial benefits will quickly come
through by way of lower interest costs.
Home…
Irish Economic View IDA reports another strong year for FDI in 2014
In its end of year review yesterday, the IDA reported another strong year for attracting FDI.
A net total of 7,131 jobs were created by its client companies in 2014, marginally ahead of
the 7,071 seen in 2013, and its highest level since 2000.
This brings the total employment at IDA companies to 174,488, its highest level on record.
The agency has also continued to broaden the variety of investment it is attracting, with 88
firms setting up in Ireland for the first time in 2014, an increase of 13% on the previous
year. Besides the benefit of providing direct employment the IDA estimates that for every 10
jobs it creates a further 7 jobs in the wider economy are supported. Allowing for these
indirect jobs, total employment is likely to be closer to 300,000, 16% of the workforce. In
addition, it also estimates that its clients are currently responsible for 10,000 construction
jobs. However, the IDA still struggled with attracting investment to the regions with only
37% of investments going outside Dublin or Cork.
The IDA has been consistently successful at attracting direct foreign investment to
Ireland and the combination of a commitment by the government to Ireland’s
12.5% corporation tax and improving economic conditions supported its activities
in 2014. While its pipeline for the start of 2015 remains strong, the agency warns
against complacency particularly in the area of competitiveness. It is also positive
that the media coverage that Ireland has received in relation to its corporation tax
regime has done little to damage flows of FDI into the country to date.
Home…
Page 2
07 Jan. 15
Juliet Tennent
+353-1-641 9469
[email protected]
Goodbody Morning Wrap
FBD Holdings Setting the scene ahead of FY14 results; Cutting estimates for FY15 and FY16
Following the Q3 IMS in November, we downgraded FY14 estimates materially after FBD
Recommendation: Hold
highlighted an uptick in large claims and prior year claims adjustments. Ahead of the FY14
Closing Price: €10.90
results in early March we take the opportunity to update our forecasts for FY15 and FY16.
Eamonn Hughes
Detail on progress addressing frequency shows that by end October, volumes were down by
4.7%, though average premiums were up 6.9%, showing a 2% rise in premiums in that
+353-1-641 9442
[email protected]
period vs 5% in H1. On revisiting likely momentum in our models, we have cut our H2
premium numbers from +3% to +1% (lower volumes, rates unchanged), but leave our FY14
operating EPS estimate unchanged at -7c. But continuing similar premium momentum into
FY15, delivering a flatter premium profile rather than our previous expectation of 4% growth
lowers operating EPS by 15c to 88c for FY15 (-14%), whilst FY16 drops to 118c (down from
141c, -16%).
Putting these adjustments through our model, in combination with higher negative
short term investment returns given lower returns for longer, pares end 2016 NAV
by 10% to €7.74. However, it also pushes our year of normalisation of earnings out
by 12 months to 2017. For valuation purposes, we are moving to an FY16 NAV from
FY15, though this is balanced by moving our long term growth rate from 2% to 0%
given the uncertain outlook. Reflecting the lower NAV and building the extra year
of discounting drives our PT down from €15 to €12.00. We retain our Hold.
Home…
UK Builders Merchants Positive trends into Q4 from Housebuilders, Topps Tiles and Marshalls
Topps Tiles has today reported Q115 lfl sales growth of 6% for the 13 weeks ending 27th of
December, representing a continuation of the 6.7% lfl growth seen in the first 8 weeks of
FY15. Management has reiterated it’s confidences in delivering further progress in FY15
towards its target of taking one third of the market.
Marshalls has issued a trading update for the full year with revenue up 17%, implying growth
of 12% in November/December. Expectations for the full year are unchanged despite an
additional £2m restructuring charge in H214. Order books have also remaind strong at 11.9
weeks, unchanged from the end of October.
UK housebuilders Persimmon and Galliford Try have issued end of year and Q215 trading
updates both citing continued growth in housing completions. Persimmon has reported that
the value of year end forward sales is up 7%, representing a slowdown from the +12% at
the end of Q3 (+22% end of Q2). Galliford Try has stated that H115 performance is in line
with expectations and that it expects continued improvements in operating margin
performance in the Housebuilding division.
Overall, these results point to continued momentum in the UK market into the final
quarter of 2014 and underpin our thesis that 2015 will be a year of further growth
in UK construction markets, albeit at a more normalised pace. This provides a
continued positive backdrop for the merchants.
Home…
Page 3
07 Jan. 15
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]
Goodbody Morning Wrap
Greencore Sainsbury sees strong Q3 convenience sales growth
Sainsbury reported Q3 lfl sales growth of -1.7% this morning. Price deflation was a
contributory factor in the decline and this looks set to continue. The company’s convenience
foods business, by contrast, saw very strong growth of 16%, similar to the last quarter, due
to more frequent local shopping trips by consumers in its high street stores.
Greencore is a key supplier of convenience foods to Sainsbury and accounts for
Recommendation: Buy
Closing Price: £2.85
Liam Igoe
+353-1-641 9450
[email protected]
circa 10% of UK sales. Greencore’s Q1 IMS will be released on the day of its AGM
on 27 January in which we expect lfl sales to continue to grow at a high single digit
rate.
Home…
First Derivatives Launches new product targetting digital marketing sector
First Derivatives has announced this morning that it has launched a new product, Delta
Marketing Cloud, on its Delta software platform. The product is targetting the digital and
mobile marketing industry across all verticals. The product will assist with combining speed
and scale to allow clients to target the right prospects at the right time and will use data
from website traffic, real-time advertising data, social media and other customer data. The
statement notes that the company has signed a number of key pilot customers.
Overall, another positive announcement from First Derivatives. While small in
revenue terms at present, it highlights its entry into another vertical which is large
and growing rapidly. We continue to highlight the significant opportunity that is
available to the group’s software business. We reiterate BUY.
Home…
Page 4
07 Jan. 15
Recommendation: Buy
Closing Price: £12.55
Rachael Cairns
+353-1-641 9162
[email protected]
Goodbody Morning Wrap
European Building Materials French cement volumes remain weak
Data released by the French Cement Association shows that the underlying construction
market remains weak with volumes down 12.6% yoy in December (adjusting for trading
days), which is the ninth consecutive month of decline. While such cement trends will be
closely watched in the coming months to see whether a recovery in Europe is taking hold, we
note that Q115 performance will be set against very difficult comparatives.
Of our covered stocks, SIG has the biggest exposure to the French construction
sector at just over 20% of group sales. However, it should be noted that this
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]
business has a track record of outperforming its underlying markets, a reflection of
its specialisation (insulation and roofing) and a strong management team.
Home…
Escher Group Trading update notes downgrade to 2014
Escher Group has released a trading statement this morning noting that a sizeable licence
agreement did not conclude before the year end 2014 and that negotiations are continuing
into 2015. It notes that group revenues are expected to be down 15% yoy in 2014 (implying
c. $21m) and that Group EBITDA will be materially below market expectations. Management
notes that it remains in a strong position in terms of its product portfolio and its international
pipeline of opportunities.
Overall, while this comes as unwelcome news, timing appears to be the major
issue. Incorporating this update along with the update in December concerning the
USPS rollout will see us reduce our 2014 Group revenue number from $26.7m to
c.$21m and reduce our FY14 EBITDA estimate from $7.2m to c.$2m ($2.6m from
the USPS rollout delay and a further c.$2.6m reflecting today’s announcement).
Home…
Page 5
07 Jan. 15
Recommendation: Buy
Closing Price: £2.43
Rachael Cairns
+353-1-641 9162
[email protected]
Goodbody Morning Wrap
Market Data
Top 10 Covered Companies
Company
AIB Group
CRH
Ryanair
Wolseley
IAG
Kerry Group
Bank of Ireland
Price
Mkt Cap
Absolute
Relative to European Sector
P/E
(LC)
(LCM)
1 Day
1 Week
1 Mth
Ytd
1 Day
1 Week
1 Mth
Ytd
2015f
2016f
0.08
42,927
-2.4
5.1
-12.8
3.8
-1.7
8.1
-7.7
7.2
45.6
55.1
18.73
13,871
-2.4
-4.1
-6.5
-5.9
-1.7
-1.4
-1.1
-2.8
19.2
15.6
9.67
13,376
-2.4
-1.6
-0.2
-1.4
-1.7
1.2
5.7
1.9
15.9
13.6
35.79
9,540
-1.6
-2.2
-3.0
-2.9
-1.2
0.1
3.0
-0.9
15.8
13.6
4.81
8,921
-2.6
-0.2
-1.2
-1.1
-1.9
2.6
4.6
2.2
n/m
n/a
56.50
9,933
-1.1
-2.6
-4.8
-1.0
-0.3
0.2
0.7
2.3
18.9
17.0
0.30
9,845
-1.3
-2.9
-11.9
-2.9
-0.6
-0.1
-6.7
0.3
12.1
11.1
easyJet
16.82
6,647
-1.2
1.1
-4.5
0.7
-0.8
3.4
1.5
2.7
n/m
n/m
Lufthansa
14.03
6,424
0.3
1.4
-5.7
1.4
1.0
4.3
-0.2
4.8
n/m
n/a
Mondi
10.18
4,943
-0.3
-3.2
-7.6
-3.0
0.4
-0.5
-2.2
0.1
11.7
11.0
ISEQ performance
Indices
Price
1 Day
1 Week
1 Mth
Ytd
5,400
ISEQ
%
5,086.19
-1.53
-2.43
-4.49
-2.65
5,300
FTSE 100
6,366.51
-0.79
-2.76
-5.58
-3.04
5,100
DAX 30
9,469.66
-0.04
-3.43
-6.12
-3.43
CAC 40
4,083.50
-0.68
-3.82
-7.60
-4.43
FTSE Eurofirst 300
1,323.47
-0.68
-2.89
-5.81
-3.29
4,700
Nasdaq
4,592.73
-1.29
-3.87
-3.93
-3.03
4,600
S&P 500
2,002.61
-0.89
-3.74
-3.51
-2.73
Dow Jones
17,371.64
-0.74
-3.40
-3.27
-2.53
Nikkei 225
16,883.19
-3.02
-3.25
-5.79
-3.25
Px 1 day Px 1 Week
5,200
5,000
4,900
4,800
4,500
4,400
4,300
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Oct-14
Jan-15
Oct-14
Jan-15
Exchange Rates
Px Dec14
Avg Ytd
Stg/€
Current
0.786
0.783
0.782
0.776
0.782
US$/€
1.192
1.194
1.216
1.210
1.200
CHF/€
JPY/€
STOXX 600 performance
1.201
1.201
1.203
1.202
1.202
355
141.502
142.761
145.214
145.079
143.489
350
345
Bonds
340
335
Yield
1 Day
Yld 1 Wk
Yld 1 Mth
Yld 3 Mth
330
US 2 Yr
0.63
-0.03
-0.06
-0.01
0.11
325
US 10 Yr
1.94
-0.09
-0.25
-0.36
-0.48
320
UK 2 Yr
0.37
0.01
-0.05
-0.14
-0.26
UK 10 Yr
1.56
-0.11
-0.23
-0.46
-0.79
BD 2 Yr
315
-0.11
0.00
0.00
-0.08
-0.04
BD 10 Yr
0.44
-0.08
-0.09
-0.30
-0.42
Irish 10 Yr
1.18
-0.01
-0.06
-0.19
-0.48
Commodities
%
310
Jan-14
1 day
5 day
1 Mth
1 Yr
51.10
-3.78
-10.87
-26.02
-52.12
Gasoline (NYM $/Gal)
1.35
-1.96
-8.00
-23.63
-48.82
16,500
Heat Oil (NYM $/Gal)
1.73
-1.31
-5.86
-18.10
-41.26
16,000
Nat.Gas
2.94
1.94
1.70
-22.72
-31.77
1,210.25
0.85
0.35
1.36
-2.89
16.29
2.58
2.00
-0.24
-18.71
6,191.00
-0.40
-2.64
-5.28
-15.35
5.92
0.47
0.34
-0.38
-2.31
Gold $/oz
Silver $/ozt
Copper U$/MT
Wheat $/BU
Source : FactSet
Page 6
07 Jan. 15
Jul-14
FTSE 250 performance
Current
Brent (ICE $/bbl)
Apr-14
17,000
15,500
15,000
14,500
14,000
Jan-14
Apr-14
Jul-14
Goodbody Morning Wrap
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specific recommendations or views expressed by me in this report.
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Page 7
07 Jan. 15
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
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Page 8
07 Jan. 15