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Today ’s Newsflow Equity Research 21 Jun 2021 08:24 BST Upcoming Events Select headline to navigate to article

Kerry Group Acquisition of Niacet, a leading preservatives Company Events business, for €853m 22-Jun DS Smith; FY21 Results 23-Jun Berkeley Group; FY21 Results UK Housebuilders Rightmove - “market to remain vigorous for at least the remainder of the year” Irish Banks BOI NPE sale generates c.15bps CET1 capital; AIB CEO interview; SME lending flat Q1

Economic Events Ireland 22-Jun PPI May21 Wholesale Price Index May21 28-Jun Retail Sales May21

United Kingdom 24-Jun BoE Official Bank Rate

United States

Europe

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Kerry Group Acquisition of Niacet, a leading preservatives business, for €853m

Kerry Group has this morning announced the acquisition of Niacet Corp (“Niacet”) for €853m, Recommendation: Buy representing a pre-synergy EBITDA multiple of 15.4x. With customers in over 75 countries Closing Price: €106.65 and key manufacturing sites in the US and The Netherlands, the business has built a leading market position in technologies in preservation. In terms of key channels, its applications are Jason Molins +353-1-641 9141 primarily used in bakery preservation (#1 market position), global leader in acetates for [email protected] pharma, and clean label low sodium meat and plant-based preservation.

From a financial perspective, Niacet is expected to deliver FY21 pro-forma revenues of $220 and EBITDA of c$66m. The 30% EBITDA margin compares to Kerry’s existing T&N margins that are in the high teens.

The transaction will enhance Kerry’s food protection and preservation offering and sits alongside its sustainable nutrition strategy. Kerry expects revenue synergies will enable the business to deliver at least mid-to-high single digit volume growth and given the existing margin profile it will also enhance Kerry’s margin profile.

Overall, we consider the acquisition of Niacet as a strong strategic fit for Kerry and will help broaden its portfolio of preservation technologies. Following the announcement of the disposal of the Consumer Foods and Meats business, we estimated the business had c.€2.5bn of financial firepower to continue to look at acquisition opportunities, especially to high-value add businesses like this morning's Niacet. Kerry’s share price has underperformed its peer set since the start of COVID, and we would expect this announcement will help narrow that gap.

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UK Housebuilders Rightmove - “market to remain vigorous for at least the remainder of the year”

House prices in the UK have hit a record high for the third consecutive month according to Shane Carberry data released by Rightmove this morning. Asking prices rose 0.8% MoM for the period from +353-1-6419118 May 9th to June 12th (classified as June data). The pace of MoM increases has slowed [email protected] somewhat from the 2.1% recorded in April and the 1.8% recorded in May but it still leaves Dudley Shanley house prices 7.5% above pre COVID March 2020 levels. Tim Bannister, Rightmove's director +353-1-641 9174 of property data, cites record low interest rates and stamp duty tax reliefs as two of the key [email protected] reasons for the soaring demand and price growth. On the other side of the equation, supply remains constrained with “the lowest ever number of available properties per estate agency David O’Brien +353-1-641 9230 branch" and some estate agents "pretty much sold out". Mr Bannister does note expectations david.a.o’[email protected] for the market to normalise although still expects “the market to remain vigorous for at least

the remainder of the year”. Robert Eason +353-1-641 9271 The supply demand imbalance looks set to underpin house price growth for the [email protected]

remainder of the year. We updated HPI assumptions in our recent sector note Kate McCarthy (please contact the team for a copy). We now expect underlying HPI of c.3% in +353-1-641 9005 2021 and c.3% in 2022 before prices stabilise. Even accounting for a more onerous [email protected] CPI backdrop, this led to significant upgrades across our coverage as 2022/23 PBT increased by broadly 10-20%, leaving us mid/high-single digit above consensus. We continue to see the sector as offering attractive upside. If you care to arrange a call to go through our note in detail, please get in contact with the team.

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Irish Banks BOI NPE sale generates c.15bps CET1 capital; AIB CEO interview; SME lending flat Q1

On Friday afternoon, BOI announced it has entered a sale (via securitisation) of a €344m Eamonn Hughes portfolio of owner occupier and buy to let investment properties. The deal is expected to +353-1-641 9442 complete on June 25th and will reduce the NPE ratio by c.40bps to 5.3%, add c.15bps to [email protected] CET1 capital and only reduce net interest income by c.€5m. The mortgages and related

customer relationships will continue to be maintained by the bank.

Our forecasts for this year incorporate gross NPE sales of c.€0.75bn (at net book value, though our CET1 benefits from the RWA derecognition). This transaction is

very much in line with our expectations, so we will not be changing our forecasts.

However, it does suggest the bank is actively managing its capital, as it looks to fund the KBC purchase – estimated cost of c.70bps – and a possible additional acquisition domestically though press commentary over the weekend suggests BOI is now facing stiffer competition from a number of other bidders, including a possible joint bid from Investec/Irish Life. We are forecasting CET1 trends at 13.5%, 13.3% and 13.9% respectively over FY21-23 (including the KBC impact).

The FT carries an interview over the weekend with the AIB CEO, Colin Hunt, as part of its Leadership series. The AIB CEO suggests the pandemic has reinforced his view that his team can drive very significant transformational change at pace, though some of these changes have been driven by wider industry and societal forces. The shift to the hybrid working model is delivering benefits and the most immediate focus is the implementation of the transformation plan (c.1,500 job cuts, exit of small business lending in Britain) and the article also covers the recently announced acquisitions of Goodbody, a portion of the Ulster Bank loan book and the life insurance jv with Great Westco. Looking forward, he remains committed to the 8% ROTE target for FY23 and signs of progress and a return to normality would be a reduction of the State’s shareholding (though noting the timing of any sale is entirely up to the State) and the removal of the pay cap across the banking system. On leadership, we note the reference to his commitment to the organisation with “I can think of very, very few roles in an Irish context that are more impactful and that can deliver more positive enduring change than being CEO of AIB” plus the choice of the CEO of Unilever (Paul Polman) as his leadership role model, someone who built a business, delivering sustainable results for all stakeholders, by focusing on the long term interests of the customers, economies and societies he served.

Post recent transactions and the Q1 trading update, our forecasts show AIB deliver This document is intended for the sole use of Goodbody Stockbrokers and its affiliates an 8.4% ROTE (on 14% CET1 target) in FY23 (though 9.0% excluding exceptional charges) and trend at a CET1 of 15% over FY21-23. We would suggest that the choice of Paul Polman as his leadership role model clearly highlights the AIB CEO’s commitment to the sustainability agenda, one of the core strategic pillars of AIB’s strategy and AIB’s success to date in this field has already been well recognised by top ratings from the likes of CDP (A), MSCI (AA) and Sustainalytics (Low Risk).

Elsewhere, the Central Bank published SME lending data on Friday for Q1. It showed that the outstanding stock of SME loans rose by 1% over Q1. Whilst gross new lending was broadly flat, redemptions were a little lower than prior quarters. The weighted average interest rate on outstanding SME loans was essentially unchanged over the quarter, up 1bp to 3.46%. However, the interest rate on new SME drawdowns declined by 7bps to 3.71%.

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