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Today ’s Newsflow Equity Research 03 Aug 2021 08:39 BST Upcoming Events Select headline to navigate to article

Bank of Ireland H121 First Glance – Strong H1s drive Company Events large FY21 upgrades 03-Aug A.G. BARR; Q222 Trading Update Bank of Ireland; Q221 Results LFL trends ramp-up in Q2 Domino's Pizza Group; Q221 Results Greggs; H1 results Domino’s Pizza Group Good H1 sales growth and further Travis Perkins; Q221 Results buyback 04-Aug AIB Group; Q221 Results Ibstock; Q221 Results Greggs Impressive recovery clear in robust H1 outcome Taylor Wimpey; Q221 Results UDG Healthcare; Q321 IMS A.G. BARR Strong H1 pushes FY21/22 PBT expectations 10-Aug Flutter Entertainment; H1 Results above pre-COVID levels Irish Economic View Manufacturing boom is holding firm – AIB PMI DCC Solid backdrop for UK fuels outlined by NWF

Economic Events Ireland

United Kingdom

United States

Europe

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Bank of Ireland H121 First Glance – Strong H1s drive large FY21 upgrades

BOI has published very strong H1s. Pre-provision profit is €466m vs our €433m estimate Recommendation: Buy (8% better) and 64% better at the pretax level (pre-exceptionals). Income was 5% better Closing Price: €4.48 (NII 3% better; NIM of 1.90% 2bps better, though non-interest c.14% beat). Costs -2% yoy (-4% u/lying) were higher than expected, but was due to timing of regulatory charges, Eamonn Hughes +353-1-641 9442 otherwise were in line. Impairments of only €1m were negligible (€150m estimate). [email protected] Elsewhere, CET1 of 14.1% was 50bps better than expected (13.6% GBS f/cast, consensus 13.7%). BOI guides H221 revenue +5% on H121; FY21 costs <€1.65bn (ex-regulatory

costs) is unchanged; H2 impairments similiar to H1. The end-21 CET1 ratio is guided +30- 50bps above H1 (plus additional optimisation initiatives being progressed) and we believe this will support both its recently announced deals and BOI notes “distributions are to recommence on a prudent and progressive basis based on performance and capital outlook” (we believe implicit within its year end CET1 guidance).

This is a really strong set of H1 results from BOI. Our first impression on the revised guidance is that FY21 revenues upgrades are likely to be c.6%, costs unchanged and obviously a negligible impairment charge. This is likely to see FY21 pre-provision profit upgrades of c.20% to €1.1bn and a more material c.50% at the pretax level (given the impairment figure). Also, the market is also likely to appreciate the y/end CET1 guidance (c.80bps above consensus) in the context of the capital need for the recently announced deals. We anticipate a strong positive reaction today. More detailed separate First Glance note published.

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Travis Perkins LFL trends ramp-up in Q2

Travis Perkins had already updated the market on June 22nd so the key incremental pieces Recommendation: Hold of newsflow from this morning's H1 results are: i) LFL trends – LFL sales growth on a 2 year Closing Price: £17.21 basis for the group as a whole came in at 18.6% in Q2, a ramp-up on the 10.2% reported for Q1. This was driven by a step-up in the pace of growth in the merchanting division to 16.1% David O'Brien +353-1-641 9230 (5.8% in Q1), whilst trends in Toolstation remained strong (38.7% in Q2 and 47.6% in Q1); david.a.o'[email protected] ii) H1 profitability – Adjusted operating profit has come in at £164m (7.1% margin) for the period, ahead of our expectation for c.£151m (we forecast 6.6% margin), with property

profits £7m higher than forecast; iii) Cost inflation – Management has continued to re-iterate the message outlined in its June trading update that whilst it continues to see headwinds from both a cost inflation and supply chain perspective, it is continuing to manage the situation “well”; iv) Guidance – The board has upgraded the guidance outlined in June from profits to be “at least” £300m to now “at least” £310m. The £10m upgrade reflects higher property profits of c.£30m versus our expectation for c.£20m and thus we will upgrade our numbers accordingly.

Other points of note: i) The sale of the P&H business to H.I.G Capital for £325m remains on track to be completed in Q3; ii) Net debt has come in on a pre IFRS-16 basis at £105m (£617m incl. IFRS) leaving leverage at just 0.3x adjusted EBITDA (1.5x incl. IFRS). The strong cash generation performance (primarily as a result of a robust working capital outturn) has led the group to announce an interim dividend of 12p (we forecast 10p) and as previously flagged, management will return the net proceeds of the P&H disposal to shareholders.

Overall a solid statement from Travis Perkins with impressive lfl sales momentum continuing to ramp-up through Q2, a better profitability outturn than we anticipated and small upgrades to come on the back of higher than expected property profits.

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Domino’s Pizza Group Good H1 sales growth and further buyback

Overall UK & Ireland systems sales growth was +19.6% to £752m. This was driven by UK & Recommendation: Hold ROI LFL sales growth ex-splits of 19.3%, ahead of our forecast of +16%, with LFL’s +18.4% Closing Price: £4.22 on an incl split store basis (Q1 LFL’s ex-splits 18.5%). Excluding the impact of VAT, LFL’s ex- splits were +5.5%. Group Revenue was up 12.5% YoY to £278m (H120 £247m). Group EBIT Paul Ruddy +353 1 641 6024 was £63.9m, ahead of our forecast of £55m, this was driven by the sales beat, lower Covid [email protected] related costs than we anticipated and a revaluation of Shorecal. Net debt was £178m, compared to £172m at FY20. During H1, the group bought back £28m (£45m programme),

and this morning announced an additional buyback of £35m.

With regard to current trading, the second half has started well, with strong total order count as it benefited from England’s run in the European Championships and additional marketing. In H2 it notes a shifting and uncertain landscape as the country normalises. This will benefit collection which it expects to return towards 2019 levels (71% of 2019 levels in H1). However, regarding delivery it expects more competition from hospitality and flags that system sales growth will be lower in H2 as the VAT rate increases (from 5% to 12.5% on 1st Oct). On FY21 guidance, the key item of note is the group expects year end Net Debt of £200m (GBYf £205m), helped by the income from the disposal and Germany, but includes the additional buy back. It also highlighted a new store incentive mechanism which aided the opening of 13 new stores, and noted “constructive engagement with franchisees”, albeit no conclusive agreement yet.

Like for like sales including splits for the UK & ROI were +18.4% (H120 3.2%, H220 15%). Within this, volumes were +4.8% and price was +13.6%. Delivery LFL sales growth was +11.7% and collection growth was +77.8% (Q220 was -94%). On a total sales basis, order growth was +3.5% (H120 -4.7%, H220 -7%). The group opened 13 new stores in the period, this compares to our forecasts of 32 stores for the UK and Ireland. Losses in the International operations (discontinued) were £7.6m (trading loss of £0.6m), compared to a loss of £19.3m in H120 (trading loss: £8.5m).

Domino’s trades on 15.3x FY22 EV/EBITDA (c.16.3x pre IFRS 16) and on c.21x P/E, above its 5 year average of 18.5x. We upgraded the group to HOLD in March based on FCF dynamics. The beat to forecasts should be well received today and will put c.5-6% upward pressure on our current year PBT forecasts, however some of the upgrade comes from one off’s including VAT so growth will be more difficult beyond this.

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Greggs Impressive recovery clear in robust H1 outcome

Greggs reported H1 results this morning and as indicated in its June 28th trading update the Recommendation: Hold recovery in sales continued into the end of the period. Overall, the Group delivered H1 Closing Price: £28.04 revenues of £546m which represents c.80% growth yoy and is bang in-line with H1’19. It compares to our forecast for £537m. The strong recovery in revenues, coupled with cost Jason Molins +353-1-641 9141 savings, resulted in H1 PBT of £55.5m (+36% vs. 2019 levels) which compares to our [email protected] forecast for £55.6m. The Group also delivered a robust cashflow performance with net cash at period end of £118m. This has prompted the reintroduction of an interim dividend of 15p

(vs. 11.9p in H1’19).

Key highlights from today’s statement include: i) overall company managed LFL sales declined 9.2% vs. 2019 levels though as previously disclosed trading markedly improved once restrictions eased. LFLs in Q2 were up 2.8% vs 2019, with the strong performance underpinned by locations accessible by car. Walk-in customer transactions remained below the level seen in 2019 as the recovery in public transport hubs and large city centres continue to lag. Delivery remained strong at 8.5% of sales; ii) Aside from improved operating leverage and good cost control, the strong growth in PBT (+36% vs H1’19) was underpinned by structural cost reductions (overheads and logistics) and the temporary benefit of business rates relief; iii) 48 new shops were opened in the period (inc. 17 franchise units) with 11 closures. The Group continues to anticipate 100 net new shop openings in 2021; and iv) Greggs ended the period with a strong net cash position of £118.3m which prompted the reintroduction of a 15p interim dividend. In addition, the Group acknowledges it is carrying a higher-than-normal cash balance which is considered prudent in the near-term. However, it does intend to return any surplus cash to shareholders in due course.

In terms of current trading, management notes that company- managed LFL sales grew by 0.4% in the recent 4 weeks to 31 July. The Group now expects FY profit to be slightly ahead of their previous expectation (in-line with FY19 levels). Overall, this is clearly another strong update from Greggs and while we consider the risks as to the upside, we are unlikely to materially change our top-of-the-range FY21 EBIT forecast of £141m (+17% vs. 2019 levels).

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A.G. BARR Strong H1 pushes FY21/22 PBT expectations above pre-COVID levels

As highlighted in a brief trading update in July, A.G Barr reported a strong H1 performance Recommendation: Hold this morning with expected Group revenues of c.£134m. This represents growth of 18% yoy Closing Price: £5.66 and 13% on a LFL basis. Both divisions (Barr Soft Drinks and Funkin) performed strongly in the period. While H1 benefitted from brand-led initiatives and market factors, the company Patrick Higgins +353-1-641 0403 also noted some one-off benefits from customer restocking, deferred overheads and phasing [email protected] of marketing investments, that are not expected to recur.

By business unit, Barr Soft Drinks benefitted from a recovery in on-the-go demand and new product launches also helped improve volume and product mix. The Funkin business unit delivered a strong performance in the on-trade channel as consumers return to hospitality sector which also drove customer restocking and an increase in cocktail rate of sale. Encouragingly, at-home cocktail sales also continued to grow in the period.

From a cost perspective, the company notes increased challenges related to UK road haulage fleet has impacted customer deliveries and inbound materials in H2. The company also sees ongoing risks related to labour and Covid-19 pandemic response to the business.

Finally, in terms of outlook, A.G. Barr reiterated recently provided guidance (given on 20/7/2021) that it expects FY21/22 profit to be slightly ahead of the £37.4m delivered in FY19/20 (i.e. the year prior to COVID). Guidance assumes one-off benefits in 1H do not recur and expect increased cost inflation in 2H due to pressure on supply chains and increased commodity prices.

Overall, this is a positive update from A.G. Barr and provides additional detail on the key drivers of the upgrade highlighted in July.

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Irish Economic View Manufacturing boom is holding firm – AIB PMI

The Irish Manufacturing sector continued to grow strongly in July. The headline AIB Shaun McDonnell manufacturing PMI eased to 63.3 in July from 64.0 and 64.1 in May and June, respectively, +353-1-641 9127 [email protected] but remained well above historical levels (highest since 1998 exc. May and June). The decline was reflected in falls in the employment, stocks of purchases and output components, all of which eased slightly from the heights reached throughout Q2 2021.

New orders continued their boom in July as a record-high was reached for the third consecutive month. In addition, new export orders spiked relative to June levels (c.62 July versus c.56 June), evidence that the outperforming export sector throughout 2021 so far continued in that vein. The increase in output led to further rises in work backlogs and supplier delivery times. This is the combined result of global raw material shortages and a boom in global demand, both of which are driving higher input prices. This was the case in July too as input prices remained near all-time highs (since 1998 in the series). This was passed to the consumer shown by another record-setting month for output prices. Output is expected to grow further in the coming months according to survey respondents. As measured by the Future Output Index, a reading of c.75 in July was a significant bounce from May’s level and well above its long-run trend (70.6 since 2012).

The release is evidence that the Irish economy began Q3 on the right footing. While a surge in the delta variant may have caused fear that the recovery would wain as it has in the UK, Ireland’s comparatively advanced vaccine rollout and outperforming export sector are clearly providing substantial protection. Q3 looks set to be a strong quarter of growth as the vaccine rollout and reopening continue. The Services PMI later in the week will provide a better indication of that.

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DCC Solid backdrop for UK fuels outlined by NWF

NWF Group, the specialist distributor of fuel, and feed across the UK, announced results Recommendation: Buy this morning for the year ended 31 May 2021. In terms of fuel, it has over 127,000 Closing Price: £60.20 customers (2020: 116,000) being supplied across 25 fuel depots in the year (2020: 25), Gerry Hennigan +353-1-641 9274 Highlights included “outperformance in Fuels with strong heating oil demand supported by a [email protected] cold winter and an increase in home working during the pandemic.” Specific commentary in the statement on fuels indicates – Headline operating profit of £9.3m (2020: £11.0m)

benefitting from increased volumes, positive product mix and improved margins across the year. Continued effective commercial and operational execution across the depot network, with strong gas and heating oil sales driving further mix improvement. Volumes rose 4.5% to 695 million litres (2020: 665 million litres); however, revenue decreased by 4.8% to £447.8m (2020: £470.2m) due to a change in sales mix, and lower average oil prices offsetting the volume growth. On a like-for-like basis (excluding the impact of acquisitions) volumes were stable. The outlook statement suggests acquisitions in the fuel segment “are being actively pursued and the opportunity for growth remains significant”.

While relatively small, and clearly focused on the UK market, the statement from NWF this morning nevertheless suggests a solid backdrop for the UK fuel market.

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