Morning Wrap

Today ’s Newsflow Equity Research 23 Oct 2015 Upcoming Events Select headline to navigate to article

William Hill Non-core online market weakness causing Company Events pain 23-Oct William Hill; Q3 2015 Results 27-Oct Carpetright; Q2 2016 Results Geberit; Q3 2015 Results European Airlines Results preview primer 28-Oct C & C Group; Q2 2016 Results St Gobain; Q3 2015 Results 29-Oct Air France-KLM; Q3 2015 Results Lufthansa; Q315 Results US Building Materials Highway awards weak again but Playtech; Q3 2015 Results still up 15% in the ytd. 30-Oct IAG; Q3 results Nobia AB; Q3 2015 Results

Applegreen Minority stake in UK peer sold for 25x EBITDA

Origin Enterprises Dow cautious on ag market outlook

Economic Events Food & Beverages Improving performance from Ireland McDonalds positive for suppliers

United Kingdom Economic View ECB signal further easing United States 23-Oct US Manufacturing PMI

Europe 23-Oct Eurozone Services PMI Euro Area Second Quarter Government Debt Eurozone Manufacturing PMI Eurozone Composite PMI

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William Hill Non-core online market weakness causing pain

William Hill has reported Q3 results this morning, with Group revenue -9% yoy Recommendation: Buy and Group EBITA -39% yoy. Management expect FY operating profit to be at the lower end Closing Price: £3.45 of current market consensus range (£291-£312m). Gavin Kelleher

+353-1-641 0423 In Online, net revenue was -3% yoy. Sportsbook revenue was -9% yoy, with wagers +2% [email protected] and gross win margin -80 bps (due to the less favourable results yoy). UK amounts wagered were +7%, with Italy +24% (cc) and Spain +13% (cc). Gaming in UK was +15% yoy

(gaming overall +2%). Non core markets (which are a higher profit contribution) were the main driver of weakness. Currency, market closures and regulatory change doing the damage (wagers in non core were -14%). Online marketing as a % of net revenue was 19% (20% in Q314), and we expect this to be questioned on the call.

In UK Retail, net revenue was -8% yoy and operating profit was -31% yoy. OTC amounts wagered were +2% yoy (+3% lfl) and gross win margin was 16.6% (Q314: 19.7%). Machines revenue was -2% yoy (-1% lfl), the group noted that the run-rate improved towards the end of Q3 following roll out new B3 content. Retail operating costs were -4% yoy, highlighting tight cost control.

William Hill Australia net revenue was -24% yoy (cc), with wagers -18% yoy and gross win margin was flat at 10.2% (Q314: 10.2%). Operating profit was -89% yoy (lc). Sporting results impacted William Hill US with gross win -16% yoy, but underlying remains strong with amounts stake +35% yoy (lc).

Overall, we expect to downgrade FY15 forecasts by 2% following this morning’s update (£300m currently). This downgrade is disappointing but expectations were relatively low coming into these numbers. The main driver of downgrades is a reduction in our online forecasts to reflect the continued impact from weakness in non-core markets. There are a number of factors behind this including currency, market exits, and regulatory blocking. The underlying performance in core online is more encouraging (UK stakes +7% and gaming +15%), but it will be into 2016 before non-core weakness is no longer an issue. Australia continues to underperform and significant question marks remain over this business in a growing market. On a positive note the underlying performance in retail is slightly better than we forecast. Following the downgrades, the stock will continue to imply a low valuation. However, any significant share price appreciation may have to wait until the online business returns to delivering revenue and profit growth.

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European Airlines Results preview primer

We have published this morning a preview of the forthcoming results of the six leading Mark Simpson +353-1-641 0478 airlines under our coverage who will be reporting over the next three weeks. [email protected]

After an extraordinary summer of demand, European airlines will report strong numbers, Jack Diskin with Legacies expected to report Q3 profits growth of ~40% yoy and LCCs some 30% (off a +353-1-641 9193 [email protected] stronger base). Guidance for the winter season, however, will likely be cautious with the European sector expected to add 8% capacity. Rachel Fox +353-1-641 0442 [email protected] One risk which we think will be seen to be mitigated is the risk of rising fuel, through the extension of fuel hedge positions. This should begin to lock-in current low fuel prices into calendar 2017. While we expect ~3% yield declines next year as a partial fuel give-back, we see airlines continuing to improve returns next year.

In terms of the key carriers, we think and Wizz, are set to power on through the winter, winning market share as they go. Ryanair will add 18% capacity over the winter, targeting Germany and Spain in particular. What stood out in the recent guidance update was that current quarter yields are forecast be flat yoy vs. a fall of 4-8% previously guided. For Wizz, we think it will fill its 21% winter growth, reflecting the continued rising demand in the markets it serves. easyJet remains a hold given static/declining ROCE.

With regards Air France-KLM and Lufthansa, we have upgraded our FY15 numbers and target prices but have left our recommendations unchanged at Hold and Sell respectively. While the change acknowledges the strong summer this year, we remain cautious beyond this into 2016. This reflects our concern that Lufthansa traffic trends are weakening and that AF-KLM may end up compromising its restructuring programme in the face of union resistance (emboldened by tacit government support).

Across the space, however, we believe that IAG is the stand out story over the next year, with FY16 ROCE pushing through 20% on current trading prospects. IAG is enjoying the benefits of the restructured Iberia business, Vueling’s capacity expansion and BA’s leading position at Heathrow. Looking forward we see substantial opportunities for IAG to drive revenues (Aer Lingus, Avios) and cut costs (IT, engineering) with these expected to feature at the group’s CMD on November 6th.

As such, we continue to see the sector as offering investors opportunities to back fast growing, innovative industry leaders, with Ryanair and IAG our lead picks.

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US Building Materials Highway awards weak again but still up 15% in the ytd.

The latest data from ARTBA (American Road & Transportation Builders Association) shows Robert Eason +353-1-641 9271 that highway contract awards declined by 15% yoy in September. This is the second [email protected] consecutive month of decline and leaves the third quarter down 10% versus +25% in Q2 and +40% Q1. Bridge contract awards were also weak at -5% in September but are still up David O’Brien +353-1-641 9230 in Q3 (+13%). david.a.o’[email protected]

Sarah Reilly Following such a strong start to the year, the recent data on highway contract +353-1-641 6080 awards is disappointing. However, we believe it is still too early to be concerned [email protected] over the prospects for this segment of the construction market. In particular, we point to the fact that awards are still +15% in the ytd and there is the prospect of a long-term solution to the federal funding component for highways. On the latter, we note that the House Transportation & Infrastructure Committee passed its multi-year measure yesterday.

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Applegreen Minority stake in UK peer sold for 25x EBITDA

Earlier this week, it was announced that private equity firm, TDR Capital, had acquired a Recommendation: Buy minority stake in UK forecourt retailer, Eurogarages. Closing Price: €4.65

Patrick Higgins Eurogarages is the closest of Applegreen’s peers in the UK in terms of focus and offering. The +353-1-641 0403 group currently operates c. 360 sites (vs. 65 for Applegreen) under various forecourt brands [email protected] in the UK and its sites provide a host of branded food & beverage offerings including Subway, Greggs, Starbucks and Burger King. We estimate the Group has 4.5% share of fuel volumes in the UK (vs. < 1% for Applegreen).

The transaction values the company at an enterprise value of £1.3bn. Following a number of acquisitions (Esso and Shell footprint) in early 2015, and coupled with strong underlying lfl gross profit growth, it is estimated Eurogarages has revenues of £1bn and EBITDA of £46m. This implies that TDR paid an EV/EBITDA multiple of over 25x, which compares to Applegreen’s current multiple of 14x.

The Eurogarages transaction highlights the multiple investors are willing to pay for exposure to forecourt retailers with a food-to-go/foodservice offering. Applegreen continues to aggressively rollout new sites in both the UK and Ireland, we estimate it will grow its footprint across the two geographies by c. 20% over the next two years.

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Origin Enterprises Dow cautious on ag market outlook

Dow Chemicals is expecting sequential declines of 3-5% in its Ag Science business in the Recommendation: Buy coming quarter due to a weak market background. Sales in Q3 fell from $1.4 billion last year Closing Price: €6.67 to $1.2 billion this year, though much of that is due to currency weakness. Latin America is a Liam Igoe particularly difficult region, notably in Brazil and Argentina due to the economic backdrop +353-1-641 9450 and also high channel inventories. Europe did, however, see volume growth in its Crop [email protected] Protection products.

The fall in cereal prices globally is impacting the performance of suppliers into the sector. The current period is a relatively quiet period for crop protection sales and the key months will be next spring. However’ indicators of winter plantings in the UK will be an important metric for Origin over the next six weeks. Origin report its Q1 IMS on November 27th.

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Food & Beverages Improving performance from McDonalds positive for suppliers

McDonalds surprised on the upside with its Q3 results yesterday, with strong comparable Liam Igoe +353-1-641 9450 sales increase of 4%. This included a comparable sales growth of 0.9% in the US, its first [email protected] positive growth quarter in two years. Within its international lead markets, sales were 4.6% higher, led by strong performances in Australia, the UK and Canada and an improving trend Patrick Higgins +353-1-641 0403 in Germany. [email protected]

The improving performance at McDonalds is a positive development for suppliers such as (bakery) and (coatings & sauces).

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Economic View ECB signal further easing

While the ECB made no change to either interest rates or its bond buying programme Juliet Tennent +353-1-641 9469 yesterday, the Central Bank signalled very clearly that more easing is on the way. In line [email protected] with expectations President Draghi said that the ECB was “ready to act when needed” and all but confirmed that action would be taken in December. However, he went further than expected when he pointed to changes to the size, composition, and design of “all our monetary policy instruments” and confirmed that a cut in the deposit rate (which is already - 0.2%) was discussed by the governing council. While the impact of the current QE programme has had a positive impact on the region’s economy, inflation returned to negative territory in September and the ECB is more concerned with risks from emerging markets that it was previously.

With risks to growth and inflation remaining to the downside it is logical that the ECB should be considering expanding its QE programme. The suggestion that it is also poised to lower its deposit rates further into negative territory was unexpected and saw the euro lose ground against all the major currencies.

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Page 6 23 Oct. 15 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 2015f 2016f AIB Group 0.08 39,263 -1.3 1.4 -2.6 -5.1 -3.3 -1.1 -8.7 -12.1 24.3 27.3 CRH 24.69 20,134 1.5 3.5 -0.9 24.0 -0.5 1.0 -7.2 14.8 22.1 13.6 Ryanair 13.46 18,627 0.6 3.4 -0.6 37.2 -1.4 0.9 -6.8 27.0 13.1 14.9 IAG 5.89 11,963 -0.8 0.3 3.8 21.1 -2.8 -2.1 -2.7 12.1 11.1 7.7 Wolseley 37.30 9,700 -1.9 0.6 -9.3 1.2 -2.5 -0.2 -14.9 0.4 15.5 14.2 Kerry Group 71.21 12,519 2.3 4.3 8.5 24.8 0.3 1.7 1.6 15.5 23.8 21.7 Bank of Ireland 0.36 11,788 1.1 2.2 9.3 16.3 -0.9 -0.2 2.4 7.7 11.4 11.9 Mondi 14.64 7,109 - 0.9 9.6 39.4 -2.0 -1.6 2.7 29.1 14.4 13.1 easyJet 17.20 6,832 -0.3 -0.1 1.2 2.9 -0.9 -0.8 -5.0 2.1 12.4 11.3 DCC 52.40 4,623 -0.5 5.2 12.0 47.5 -1.1 4.4 5.1 46.3 16.8 21.1

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd 7,000 ISEQ 6,415.10 0.92 2.90 0.88 22.79 6,500 FTSE 100 6,376.28 0.44 0.59 7.42 -2.89

DAX 30 10,491.97 2.48 4.24 9.63 7.00 6,000 CAC 40 4,802.18 2.28 2.71 8.44 12.39 FTSE Eurofirst 300 1,462.11 2.13 2.57 7.10 6.84 5,500 Nasdaq 4,920.05 1.65 1.03 3.43 3.89 5,000 S&P 500 2,052.51 1.66 1.42 5.65 -0.31 Dow Jones 17,489.16 1.87 2.03 7.10 -1.87 4,500 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Nikkei 225 18,435.87 -0.64 1.87 2.02 5.65

Exchange Rates

Current Px 1 day Px 1 Week Px Dec14 Avg Ytd

Stg/€ 0.724 0.734 0.736 0.776 0.729 STOXX 600 performance US$/€ 1.116 1.135 1.139 1.210 1.116 CHF/€ 1.084 1.086 1.082 1.202 1.065 420 410 JPY/€ 134.333 136.203 134.947 145.079 134.848 400 Bonds 390 380 Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 370 360 US 2 Yr 0.60 -0.02 0.60 -0.07 -0.11 350 US 10 Yr 2.03 0.00 0.01 -0.10 -0.29 340 330 UK 2 Yr 0.52 -0.01 0.01 -0.04 -0.29 320 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 UK 10 Yr 1.69 0.00 0.03 0.01 -0.36

BD 2 Yr -0.33 -0.07 -0.06 -0.33 -0.10

BD 10 Yr 0.50 -0.07 -0.06 0.50 -0.20

Irish 10 Yr 1.07 -0.09 -0.10 -0.13 -0.32

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr Brent (ICE $/bbl) 48.08 0.48 -4.72 -2.04 -43.24 18,000 Gasoline (NYM $/Gal) 1.28 - -3.55 -9.57 -40.58 17,500 Heat Oil (NYM $/Gal) 1.47 - -1.53 -5.31 -40.07 17,000 Nat.Gas 2.39 -0.75 -1.81 -7.41 -34.79 Gold $/oz 1,167.00 -0.01 -1.17 3.93 -6.17 16,500 Silver $/ozt 15.77 0.13 -1.68 5.56 -9.16 16,000

Copper U$/MT 5,274.00 1.71 0.08 2.79 -21.64 15,500

Wheat $/BU 4.95 - 0.51 -0.15 -5.27 15,000 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

Source : FactSet

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